
Class. 

Book 

Copyright^ . 



COPYRIGHT DEPOSIT 




NOTE: 
Red circle* hulicate individual Plants, 
except tit the Lehigh district of 
Pennsylvania where 93 plants are too 

doneiu </i <■'•!" '' to admit oj separate 

. • in.,, i. 

L.L.P0ATE8, ENGR'GCO 



C.San Lucas 



MAP OF THE UNITED STATES SHOWING L( 




ION OF PORTLAND CEMENT PLANTS IN 1908. 



THE 

Portland Cement Industry 

from A 

FINANCIAL STANDPOINT 



By 
Edwin C. Eckel 



New York 
MOODY'S MAGAZINE 

1909 



LIBRARY of CONGRESS 
Two Copies Received 

FEB 24 W09 

Copyright tntry 

CLASS °< XXc. No. 

COPY 3. 



Copyright, 1909, By 

EDWIN C. ECKEL 

New York 






PRESS OF 

ISAAC H. BLANCHARD CO. 

NEW YORK 



PREFACE 

THERE is at present every indication that the 
first broad improvement in the general business 
situation will be the signal for the attempted flo- 
tation of an unprecedentedly large mass of cement se- 
curities. Some of the enterprises against which these 
securities are issued will ultimately prove successful and 
profitable; some, though exploited honestly, will prove 
to have been mistakenly planned; a third and not in- 
considerable group of projects will be exploited for the 
sole purpose of defrauding the investor. 

The Portland Cement Industry is of great and 
growing importance. Cement plants, when properly 
financed, located, constructed and managed, have made 
very satisfactory returns to their stockholders. There 
is still room in the industry for honestly and intelligently 
managed new enterprises, but competition is now so 
keen that there is no room for weak plants — for plants 
that are poorly located or designed, for companies that 
are dishonestly promoted or carelessly managed. The 
manufacture of cement is a legitimate industry, and the 
methods of mining promoters have no place in it. 

The present little volume attempts to discuss cer- 
tain features connected with the financial side of the 
Portland Cement Industry. It is hoped that it will 
prove of service both to the banker, who is invited to aid 
in the flotation of cement securities, and to the investor, 



who is invited to buy them. It will have served its pur- 
pose if it aids either banker or investor to differentiate 
between securities offered against successful existing 
plants or sound projects, with reasonable prospects of 
success, and those issued against foolishly planned or 
fraudulently promoted propositions. 



EDWIN C. ECKEL 



209 Munsey Building, 
Washington, D.C. 

October SI, 1908. 



CONTENTS 



CHAPTER PAGE 

I. THE HISTORY OF THE PORTLAND CE- 
MENT INDUSTRY. 9 

The early English natural cements 10 

Invention and early history of Portland Cement 12 

Early American Portland Cement manufacture . 13 

The rotary kiln and its effects on the industry . 14 

II. THE GROWTH OF THE AMERICAN CE- 
MENT INDUSTRY; STATISTICAL. 17 
American Portland Cement production, 1870-1907 17 
Production of Portland Cement, by states, 1906- 

1907 20 

Production of cement by districts, 1905-1907 . 21 

Imports of foreign cement 22 

Exports of domestic cement 22 

Annual consumption of cement 23 

The course of cement prices, 1875-1907 .... 24 

III. THE OUTLOOK FOR THE FUTURE. 27 

The future growth of the industry 27 

Possible decreases in operating costs .... 31 

The future course of prices 32 

Possible price regulation 35 

Concentration of interest in the cement industry . 37 

The influence of patents on the cement industry . 35 

The growth of the patent-holding company ... 39 

Present status of concentration in the industry . 40 

Improvements in marketing conditions .... 42 

The development of the export trade .... 43 

Summary of future prospects 43 

IV. FACTORS INFLUENCING THE VALUA- 

TION OF CEMENT SECURITIES. 45 

Summary of cement manufacture 45 

Elements of plant location 45 

Raw materials and their valuation 4g 

Geographic distribution of cement material in the 

United States 54 

5 



CONTEXTS 



The importance of fuel supplies ...... 55 

Transportation facilities 56 

Markets and competition 57 

Financial plans 58 

V. THE METHODS AND PROFITS OF CE- 
MENT PROMOTIONS. 59 

The impending flood of cement securities . . 59 
The profits of cement promotions; their source 

and amount Qq 

THE MISSTATEMENTS OF CEMENT 

PROSPECTUS WRITERS 65 

A. Misstatements as to general conditions QQ 

B. Excessive valuations of raw material 

supplies 67 

C. Misstatements as to selling prices . . gg 

D. Low estimates of manufacturing costs . 68 

E. Exaggerated estimates of profits ... go 

VI. THE CAPITALIZATION OF CEMENT 

COMPANIES. 71 

Objections to over-capitalization ~± 

The basis for reasonable capitalization . 

Minimum possible capitalization 73 

Maximum satisfactory capitalization .... 74 

The actual capitalization of existing companies 75 

VIL CEMENT BOND ISSUES. 79 

The general status of industrial bonds . 
Bond issues against established plants . 
Bond issues against unbuilt plants 
Examples of typical cement bond offerings 
Security offered for bond issues . 
Earning power back of the security . 



79 
SO 

SI 
S2 
S3 
84 



VIII. THE PROFITS AND LOSSES OF CEMENT 

MANUFACTURE. 84 

Accounts of a Lehigh District cement company 37 

Accounts of a Michigan cement company . . 89 

Dividends of two established companies ... m 

The chance of success and failure og 



ILLUSTRATIONS 



MAP OF THE UNITED STATES SHOW- 
ING LOCATION OF PORTLAND CE- 
MENT PLANTS IN 1908 Frontispiece 

FIGURE PAGE 

I. GROWTH OF PORTLAND CEMENT 
OUTPUT, 1890-1907, AND COMPARI- 
SON WITH DECLINE OF NATURAL 
CEMENT 19 

II. THE COURSE OF CEMENT PRICES, 

1880-1907 25 

III. COMPARISON OF PORTLAND CE- 

MENT AND PIG-IRON PRODUC- 
TION, 1890-1907 29 

IV. COMPARISON OF PRICE-DECLINES 

IN STEEL RAILS (1867-1907) AND 
PORTLAND CEMENT (1880-1907). ... 3$ 



THE 

PORTLAND CEMENT INDUSTRY 

from a 
FINANCIAL STANDPOINT 

CHAPTER 
I 

THE HISTORY OF THE PORTLAND 
CEMENT INDUSTRY 

IN spite of the present and growing importance of the 
industry, the history of Portland Cement manufac- 
ture covers a relatively short period of time, as compared 
with that of the iron industry, for example. Contrary 
to a somewhat popular idea, the ancients do not seem 
to have been acquainted with cements of the type which 
are now so widely employed. The " cements' ' used by 
the Romans, for example, were not burned products 
similar to the Portland Cement now used, but were made 
by mixing slaked lime with a powdered volcanic ash, 
called pozzuolana. These pozzuolanic or "puzzolan" 
cements still survive, though not of the greatest indus- 
trial importance. 

During the Middle Ages even the use of the puz- 
zolan cements seems to have been discontinued for large 
structural work. In those periods the material used for 
holding masonry together was a plain lime mortar, 
though by using time and great care in the preparation 
of the lime, the mortar and the masonry, structures of 
great strength and durability were finally developed. 
This use of lime as the only mortar material persisted 
down to near the close of the Eighteenth Century, when 
a new series of cementing materials, of essentially mod- 

9 



THE PORTLAND CEMENT INDUSTRY 

ern type, was developed through careful experiment, 
almost simultaneously in France and England. 

THE EARLY ENGLISH NATURAL CEMENTS 

In 1756 or thereabouts Smeaton, the English engineer, be- 
gan a series of experiments on lime mortars, the point at in- 
terest being the selection of a lime calculated for use in marine 
construction, and the immediate necessity for the experiments 
being the construction of the Eddystone lighthouse. No record 
of these experiments was published until 1791, so that they had 
no immediate influence on engineering practise. Smeaton soon 
found that the property of hardening under water, known to be 
possessed by some limes, was not due to the purity of these par- 
ticular limes, as had been long supposed. In fact, the truth of the 
matter was quite the reverse, for the very impure, clayey lime- 
stones, when burned, would harden under water, while the pure 
limes would not. Though the experiments of Smeaton were ap- 
parently not carried to the point of making a true cement, his 
conclusions regarding the effect of clay in limestone opened the 
way for further investigation and research. 

The next step marked a great advance in practise. This 
was the invention in 1796 in England, and almost simultaneously 
in France, of a cement like our present-day natural or Rosen- 
dale cements. Parker, who took out an English patent in 1796, 
later termed his new product "Roman" cement, which was clearly 
a misnomer, for he had invented a product never known to the 
Romans. The Parker patent contemplated the use, as a raw 
material, of certain concretions common in some of the English 
coastal formations, and consisting of a natural mixture of clay 
and limey matter. These concretions were to be burned "with 
a heat stronger than that used for burning lime." When so 
burned, the product would not slack naturally when water was 
applied to it, as would an ordinary lime, but it required to be 
first powdered. After powdering, however, the resulting "Ro- 
man cement" would harden when mixed into a paste with water, 
and this paste would harden not only in air, but also when placed 
under water. 

10 



HISTORY PORTLAND CEMENT INDUSTRY 

Parker's cement soon came into general use in England, while 
a series of similar products were manufactured in France and 
in other portions of the Continent. The introduction of natural 
cement manufacture into the United States took place in 1819, 
the discovery of the native raw materials in central New York 
being due directly to the construction of the Erie Canal. From 
that date on, the manufacture of natural cement spread rapidly 
in the United States. Mr. R. W. Lesley has pointed out the 
direct relation of our early natural cement industry to the canal 
construction which was then so prevalent. "The first large pub- 
lic works built in this country were the canals, and the most 
necessary thing to build a canal was mortar that would hold the 
stones together at the locks, or walls, under water. Consequent- 
ly, wherever canals were to be built, there was a search for ce- 
ment rocks, and all the earliest works in this country were estab- 
lished on the lines of canals. Thus, on the Chesapeake and 
Ohio Canal are the Cumberland and Round Top Works ; on the 
Lehigh Canal the works at Siegfrieds and Coplay, Pa. ; on the 
Richmond and Allegheny Canal the works at Balcony Falls, 
Va. ; on the Delaware and Hudson Canal the large group of 
works at Rosendale and Kingston ; and on the Falls of the Ohio 
Canal the large aggregation of works about Louisville. From 
this same fact grew the early package used in shipping cement 
in this country, the barrel, which was the package best adapted 
to water transportation; and it took many years, ever since the 
railroads came, to overcome the prejudice for this form of pack- 
age and to substitute the paper or duck bag for the barrel." 

The natural cement industry grew rapidly in the United 
States, reaching a maximum production of not quite ten million 
barrels in 1899. From that date onward, however, it began to 
suffer heavily from the competition of domestic Portland Ce- 
ment, and in the last decade the output of natural cement has 
shown an almost continuous and quite rapid annual decrease, 
until now it has become a relatively unimportant factor in the 
cement situation. This matter will be noted later, in discussing 
the statistical growth of the American Portland Cement industry. 



II 



THE PORTLAND CEMENT INDUSTRY 

THE INVENTION AND EARLY HISTORY OF 
PORTLAND CEMENT 

In following out the growth and decline of the American 
natural cement industry we have overrun considerably the course 
of events as regards Portland Cement, but it seemed advisable 
to complete a sketch of the earlier product before taking up 
the newer and more important material. 

The history of Portland Cement begins a quarter-century 
after that of Parker's "Roman" cement. In 1824, Aspdin took 
out an English patent for an artificial cement, which he named 
"Portland" cement, because of a rather fanciful resemblance be- 
tween the set cement and a favorite English building stone — 
the oolitic limestone of Portland. 

Aspdin's patent specification covered the general method of 
Portland cement manufacture, though it omitted to mention cer- 
tain important factors or limitations in the process. He speci- 
fied that a pure limestone was to be burned into lime. This lime 
was to be mixed with a specific quantity of "argillaceous earth 
or clay," and the mixture was then to be pulverized in a wet 
state. The wet mix was to be dried, broken into lumps, and cal- 
cined in a kiln ; and finally the burned product was to be pow- 
dered. The only serious omissions in this statement are that the 
relative amounts of lime and clay are not specified, and that no 
mention is made of the fact that it was necessary to burn the mix 
at a temperature considerably above that of an ordinary lime 
kiln. But that these omissions were not due to lack of knowl- 
edge, but to carelessness or caution, is evidenced by the facts 
that Aspdin was actively engaged in Portland Cement manufac- 
ture within a year of the issuance of his patent, and that the 
Aspdin family long continued to be prominent in the English 
Portland Cement industry. 

The English Portland Cement industry showed for many 
years a very slow rate of growth, and, though manufacture of 
the new product was taken up on the Continent quite early, the 
total production was not very large. About 1850, however, a 
distinct increase in output, both in England and in Germany, 

12 



HISTORY PORTLAND CEMENT INDUSTRY 

appears to have taken place, and from this time on Portland 
Cement began to displace the older natural cements in all Euro- 
pean markets, while it gradually became an important article of 
import into the United States. 



EARLY AMERICAN PORTLAND CEMENT 
MANUFACTURE 

In spite of the growth of the Portland Cement industry 
abroad, it was not until the third quarter of the Nineteenth Cen- 
tury that the manufacture was taken up in this country. Then, 
as in many similar cases, it arose almost simultaneously in sev- 
eral parts of the country, experiments being carried on almost 
or quite independently at a number of small plants. In 1872 an 
attempt was made to utilize marl and clay in the manufacture of 
Portland Cement near Kalamazoo, Mich., but this first project 
seems to have been entirely unsuccessful commercially, and it is 
certain that it exerted no influence on later experiments. In 
1875 a true Portland was being made at a small plant in Western 
Pennsylvania, the materials there used being limestone and clay. 
This plant, at Wampum, Pa., is still in existence. At about the 
same date small experimental plants were erected in New York 
State, but these did not result in immediate returns. 

In the meantime, the basis for the great Portland Cement in- 
dustry of the Lehigh district was being laid, the start being made 
from rather unpromising conditions. Natural cement had long 
been manufactured in the Lehigh region, and in the early seven- 
ties attempts were made by Mr. D. O. Saylor and his associates 
to select from the natural cement quarries the beds which might 
on burning furnish a Portland Cement. The result, though 
always variable and usually unsatisfactory, was that a certain 
small tonnage of good Portland Cement began to be produced 
annually in this district, really as a sort of by-product of the 
natural cement industry. The present Coplay Cement Co. is 
the outgrowth of the first successful attempt to manufacture 
Portland Cement in this district. 

• 13 



THE PORTLAND CEMENT INDUSTRY 

It must be borne in mind that at this stage in the industry 
the wet process and stationary kilns were in use in America as 
well as in Europe. This involved reducing the raw materials 
to powder, mixing to a paste with water, forming the mixture in- 
to bricks or balls, charging into and burning in a stationary 
kiln, and again reducing the clinker ed masses thus formed to 
powder. When naturally soft and wet raw materials were used, 
like marl and clay, the earlier stages of this process were of 
course considerably simplified, but with the hard, dry raw ma- 
terials of the Lehigh district the cost was almost prohibitive. 
Under American conditions as to high-priced labor, it was evi- 
dent that the cement industry, if carried on in such a fashion, 
stood little chance for growth in this country. This indeed 
proved to be the case and for a number of years little or no in- 
crease in American production could be noted, while the margin 
of profit as against foreign cements cheaply laid down in our 
coast cities was too small to encourage the American manufac- 
turer to increase his output. 

THE ROTARY KILN AND ITS EFFECTS ON THE 
INDUSTRY 

It was early recognized that the relatively dear labor and 
cheap fuel of America, as contrasted with the cheap labor and 
dear fuel of Europe, would necessitate serious changes in Port- 
land Cement manufacture if that industry were ever to be es- 
tablished on a firm footing in this country. In the general 
effort to cut down the excessive labor-cost of the product, two 
points of attack were obvious. In order to fit the industry in- 
to American conditions both the burning and the grinding pro- 
cesses must be cheapened, and this was effected when the old 
stationary kilns and millstones were displaced, respectively, by 
the rotary kiln and b}^ modern grinding machinery. Of the 
two changes, the substitution of the rotary for the stationary 
kiln was the more distinctively American in its development, 
and demands further attention because of the important effects 
which it had upon the general course of the industry. 

14 



HISTORY PORTLAND CEMENT INDUSTRY 

The Ransome Patents (Great Britain, 1885; United States, 
1886) are looked upon as the basis on which later developments 
in the use of the rotary kiln were founded, since the kilns now 
in use are direct successors of those of the Ransome type. 

It had been expected that the fuel used in the Ransome kiln 
would be producer gas, but as a matter of fact, when the rotary 
was first successfully used in the cement industry — at South 
Rondout, N.Y., in 1889 — petroleum was used as fuel, and for 
a number of years this continued to be the usual American 
practise. At the South Rondout plant it was found possible 
to charge the mixed and ground raw materials directly to the 
kiln, without wetting, so that another step was made in the in- 
dustry. In 1891, at Montezuma, N.Y., naturally wet raw ma- 
terials were charged into the kiln without preliminary drying. 
The two main types of present American practise were thus 
in existence — the dry process, used with limestone or cement- 
rock, and the wet process, used with marl. 

The next step in the development of the rotary came when 
powdered coal was substituted, as a fuel, for petroleum. This 
took place about 1895, and soon became standard practise 
throughout the United States. This change brought about 
long and costly litigation regarding the patent rights involved, 
and it is probable that this condition will continue for some time. 
The matter will again be referred to later in this volume, in 
discussing the effects of patents on the cement industry. 

The latest development in the rotary kiln has been purely a 
matter of dimension. Five years ago American rotaries had ar- 
rived at a practically standard length of sixty feet, with a nomi- 
nal capacity of two hundred barrels of cement daily. Since 
that date, both size and capacity have been largely increased, 
the kilns now installed being from one hundred to one hundred 
and fifty feet in length, and giving an output of from three hun- 
dred to five hundred or more barrels daily. 

IMPROVEMENTS IN GRINDING APPARATUS. 

Running on parallel lines with the improvements in the rotary 
process of burning cement came the great changes in crushing 

15 



THE PORTLAND CEMENT INDUSTRY 

and grinding machinery, which have enabled the industry to deal 
with its enormous tonnage of raw and finished material. From 
the cracker crushers and mill stones of the early "80's" to the 
great Gates & McCully crushers, and the Griffin, Fuller, Hunt- 
ingdon tube and other iron mills of the present day, was an 
immense step forward. Many of these changes were worked out 
at the mills of the American Cement Company at Egypt, Lehigh 
County, Pa., by Messrs. Eckert and Lesley, old associates of 
Saylor and also at the Lehigh, Alpha and Atlas mills in the same 
region . 

Each of the steps above briefly outlined has had a marked 
effect on the industrial status of Portland Cement manufacture 
in the United States. The most obvious result, of course, has 
been the rapid growth of the industry as regards total annual 
output. Coincident with this, however, has come a cheapening 
of the product, and this steady fall in prices is often overlooked 
when new developments are planned. Both of these phases of 
the cement industry are best illustrated by long series of com- 
parative statistics, and the following chapter will therefore be 
devoted to a statistical consideration of the growth of the 
American cement trade. 



16 



CHAPTER 
II 

THE GROWTH OF THE AMERICAN 
CEMENT INDUSTRY— STATISTICAL 

IN the present chapter statistical data are presented 
relative to the production of Portland Cement in the 
United States, imports and exports of cement, apparent 
annual consumption of cement, average prices, etc. 
These data are official, being quoted from the reports 
on this industry annually issued by the United States 
Geological Survey, though in many cases the tables 
have been rearranged to better suit the purposes of the 
present volume. 

AMERICAN PRODUCTION OF PORTLAND CEMENT, 

1870-1907 

Of course any deductions that may be made concerning the 
possible future growth of the American cement industry must 
be based upon a study of the facts relative to its past develop- 
ment. In the table following, statistics are given covering the 
annual production of Portland Cement in this country from the 
inception of the industry to the present day. 

On examination of the above table, it will be seen that the in- 
dustry showed a fair, but not in any way remarkable, rate of 
growth from its commencement in the seventies until 1895. At 
the latter date, however, a very striking development commenced, 
coincident, it may be noted, with the development of coal-burn- 
ing in the rotary kiln. This rapid rate of growth continued un- 
til 1907, when it was checked temporarily by the financial crisis 
of that year. 

The phenomenal growth of the industry in this period is 
illustrated very strikingly in the diagram below, where it is 
shown graphically for the years 1890 to 1907, inclusive. For 
comparison, the decline in the natural cement industry is plotted 
on the same diagram. 

17 



THE PORTLAND CEMENT INDUSTRY 



American Production of Portland Cement, 1870-1907. 



YEAR 



BARRELS 



VALUE 



1870-1879 


82,000 


$ 246,000. 


1880 


42,000 


126,000. 


1881 


60,000 


150,000. 


1882 


85,000 


191,250. 


1883 


90,000 


193,500. 


1884 


100,000 


210,000. 


1885 


150,000 


292,500. 


1886 


150,000 


292,500. 


1887 


250,000 


487,500. 


1888 


250,000 


487,500. 


1889 


300,000 


500,000. 


*1890 


335,500 


704,050. 


1891 


454,813 


967,429. 


1892 


547,440 


1,153,600. 


1893 


590,652 


1,158,138. 


1894 


798,757 


1,383,473. 


1895 


990,324 


1,586,830. 


1896 


1,543,023 


2,424,011. 


1897 


2,677,775 


- 4,315,891. 


1898 


3,692,284 


5,970,773. 


1899 


5,652,266 


8,074,371. 


1900 


8,482,020 


9,280,525. 


1901 


12,711,225 


12,532,360. 


1902 


17,230,644 


20,864,078. 


1903 


22,342,973 


27,713,319. 


1904 


26,505,881 


23,355,119. 


1905 


35,246,812 


33,245,867. 


1906 


46,463,424 


52,466,186. 


1907 


48,785,390 


53,992,551. 



*The figures for 1890 and prior rears were estimates made at the close 
of each year, but are believed to be substantially correct. Since 1890 the 
official figures are based on complete returns from all producers. 

On examining the cement statistics for a series of years, it 
will be seen that the output of Portland Cement has so far 
shown an increase each year, rising from 42,000 barrels in 1880 
to 335,500 barrels in 1890, to 8,482,020 barrels in 1900, and 
to 48,785,390 barrels in 1907. The natural cement production, 
on the other hand, reached its maximum in 1899, with an out- 
put of 9,868,179 barrels. Since that year it has shown an al- 
most continuous and quite rapid decrease annually, until now it 
has become a relatively unimportant factor in the cement situa- 



18 

































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1 1 


































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35,000,000 








































































































































































30,000,000 
































































































































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■ ■ » . ■J MAT.QRIM. CEMENT, «•— • PORTLAND CEMENT, 

fig. 1 COMPARISON OF 'PRODUCTION OF PORTLAND 
AND NATURAL CEMENT, 1890-1907 

19 



THE PORTLAND CEMENT INDUSTRY 



tion. These facts are brought out clearly in the appended dia- 
gram (Figure 1). 

The total Portland Cement production of the United States 
in 1907 was 48,785,390 barrels, valued at $53,992,551, an in- 
crease over the output of 1906 of 2,321,966 barrels, or about 
five per cent, in quantity, and of $1,526,365, or about three per 
cent, in value. The distribution of this total among the different 
producing states in 1907 is given in the following table. The 
production by states for 1906 is included for comparison: 

Production of Portland Cement in the United States in 1906 
and 1907, by states. 



1906 


1907 


State 


.5* 

CL, 


Quantity 

(barrels) 


Value 


State 


bfi 

c 
"38 

3 S 

8a 


Quantity 
(barrels) 


Value 


Illinois . . 


4 


1,858,403 


$2,461,494 


Illinois . . 


5 


2,036,093 


$2,632,576 


Indiana 


6 


3,951,836 


4,964,855 


Indiana 


7 


3,782,841 


4,757,860 


Kansas . . 


4 


3,020,862 


3,908,708 


Kansas . . 


5 


3,353,925 


4,240,358 


Michigan . 


14 


3,747,525 


4,814,965 


Michigan . 


14 


3,572,668 


4,384,731 


New Jersey 


3 


4,423,648 


4,445,364 


New Jersey 


3 


4,449,896 


4,738,516 


New York 


9 


2,414,362 


2,725,744 


New York 


9 


2,290,955 


2,433,918 


Ohio . . . 


8 


1,422,901 


1,709,918 


Ohio . . . 


9 


1,151,176 


1,377,155 


Penn. . . 


19 


18,645,015 


18,598,439 


Penn. . . 


22 


20,393,965 


19,698,006 


Alabama . 


1 


^) 




Alabama . 


2 


^ 




Georgia 


1 


[ « 




Georgia . 


1 


L n 




Virginia . 


1 


>1, 172,041 


1,432,023 


Virginia . 


1 


> 1,274,470 


1,383,305 


W. Virginia 


1 


J 




W. Virginia 


1 


J 




Arizona 


1 


1 




Arizona . 


1 


") 




Colorado . 


1 


1 




S. Dakota 


1 


\ 534,534 


915,301 


S. Dakota 
Texas . . 
Utah . . . 


1 
2 
1 


k, 146, 396 


2,034,382 


Texas . . 

California 
Wash. . . 


2 

4 
1 


J 

l 1,893,004 

} 864,938 


2,715,398 


California 
Wash. . . 


3 

1 


1-1,310,435 


2,110,2941 


Colorado . 
Utah . . . 


1 
2 


1,395,179 


Kentucky 
Missouri . 


1 

2 


1-3,350,000 


3,260,0001 

i 


Kentucky 
Missouri . 

Total . . 


1 
2 

94 


} 3,186,925 


3,320,248 


Total . . 


84 


46,463,424 


52,466,186 


48,785,390 


53,992,551 



In the foregoing table, the outputs of states having only 

20 



GROWTH AMERICAN CEMENT INDUSTRY 

one or two active plants are combined, so as to prevent publi- 
cation of individual figures. In 1907, for example, the follow- 
ing combinations are made: Alabama, Georgia, Virginia, and 
West Virginia; Kentucky and Missouri; Colorado and Utah; 
Texas, Arizona, and South Dakota ; California and Washington. 

PRODUCTION BY DISTRICTS 

The Portland Cement Industry exhibits the same tendency 
toward geographic centralization, though to a less degree, that 
has given Pittsburg its preeminence as an iron producer. In 
the case of the Portland Cement Industry the concentration of 
plants is in the so-called Lehigh district of Pennsylvania, with 
its New Jersey continuation. Here, 21 plants made over £4,- 
400,000 barrels, or slightly over half of all the Portland Cement 
produced in the United States in 1907. The Lehigh district 
was the point where American Portland Cement manufacture 
was first undertaken, and it owes its continued preeminence to 
the possession of good raw materials, good labor, good and fairly 
cheap fuel, and excellent transportation facilities to large East- 
ern markets. 

Geographic Distribution of Portland Cement Industry 
1905-1907 





Plants in opera- 
tion. 


Output, in barrels. 


Percentage of 
total output" 




1905 


1906 


1907 


1905 1906 


1907 


1905 


1906 


1907 


East . . . 
Central . . 
West. . . 
Pac. Coast 
South . . 


30 

32 

7 
3 
7 


31 

34 

8 
4 

7 


34 
37 
10 

5 
8 


19,589,675 

10,723,802 

2,470,349 

1,225,429 

1,237,557 


25,483,025 

14,030,665 

3,834,656 

1,310,435 

1,804,643 


27,134,816 

13,479,703 

4,463,397 

1,893,004 

1,814,470 


55.6 

30.4 

7.0 

3.5 

3.5 


54.9 

30.2 

8.2 

2.8 

3.9 


55.6 

27.6 

9.2 

3.9 

3.7 


Total . . 


79 


84 94 


35,246,812 


46,463,424 


48,785,390 


100.0 


100.0 


100.0 



Taking a general view of the matter, the present geographic 
distribution of the cement industry is well shown in the above 
table. The term "East," as here used, includes plants in 
Pennsylvania, New York, and New Jersey, none being located in 



21 



THE PORTLAND CEMENT INDUSTRY 

New England. The "Central" plants are those in Ohio, Indiana, 
Illinois, Michigan, and Missouri. Under "West" are included 
Kansas, Colorado, South Dakota, Arizona, and Utah. On the 
Pacific Coast are the four active California plants and one re- 
cently started in Washington. The "South" includes Virginia, 
West Virginia, Georgia, Alabama, Arkansas, Texas, and Ken- 
tucky. 



IMPORTS OF FOREIGN CEMENT 

The following table contains the amount of foreign cement 
imported into the United States during the years 1878 to 1907, 
inclusive. It is to be noted that, owing to the manner in which 
import statistics are grouped under existing tariff schedules, the 
quantities given include not only Portland Cement, but all other 
hydraulic cements. The Portland Cement, however, probably 
makes up at least 95 per cent of the total in each year. 



Imports of foreign cement, 1878-1907 . 



YEAR 



QUANTITY YEAR 



QUANTITY YEAR 



QUANTITY 



1378 92,000 

1879 106,000 

1880 187,000 

1881 221,000 

1882 370,406 

1883 456,418 

1884 585,768 

1885 554,396 

1886 915,255 

1887 1,514,095 



1888 1,835,504 

1889 1,740,356 

1890 1,940,186 

1891 2,988,313 

1892 2,440,654 

1893 2,674,149 

1894 2,638,107 

1895 2,997,395 

1896 2,989,597 

1897 2,090,924 



1898 
1899 
1900 
1901 
1902 
1903 
1904 
1905 
1906 
1907 



1,152,861 

2,108,388* 

2,386,683* 

939,330* 

1,963,023* 

2,251,969* 

968,409* 

896,845* 

2,273,493* 

2,033,463* 



* "Imports for consumption." All other years' figures given are for "total imports." 

EXPORTS 

The United States now possesses only a small export trade 
in cement, the amount annually exported ranging usually be- 
tween 1 per cent and 3 per cent of the domestic production. 



22 



GROWTH AMERICAN CEMENT INDUSTRY 

As noted later, there seem to be excellent reasons for increasing 
this export trade as rapidly as possible, and it may soon become 
a more important feature of the industry. 

The following table gives the quantity and value of all classes 
of hydraulic cement exported during the years 1900-1907, in- 
clusive. These totals represent almost entirely exports of Port- 
land Cement. 



Exports of hydraulic cement, 1900-1906, in barrels. 



Year 


Quantity 


Value 


Year 


Quantity 


Value 


1900 . . . 

1901 . . . 

1902 . . . 

1903 . . . 


100,400 
373,934 
340,821 
285,463 


$225,306 
679,296 
526,471 
433,984 


1904 . . . 

1905 . . . 

1906 . . . 

1907 . . . 


774,940 
897,686 
583,299 
900,550 


$1,104,086 

1,387,906 

944,886 



APPARENT ANNUAL CONSUMPTION 

The table below contains data on the apparent annual con- 
sumption of Portland Cement in the United States for recent 
years. The computed results are of course merely approxi- 
mations to the truth, for unavoidable errors arise from the facts 
that (a) both imports and exports, as reported officially, include 
not only Portland but small quantities of other classes of ce- 
ment; and (b) no data are available as to stocks on hand at 
mills or at distributing points at the close of each year. 

Apparent annual consumption of Portland Cement, barrels 



1902 
1903 
1904 
1905 
1906 
1907 



Domestic 
Production 



17,230,644 
22,342,973 
26,505,881 
35,246,812 
46,463,424 
48,785,390 



Imports 



1,963,023 
2,251,969 
968,410 
896,845 
2,273,493 
2,033,463 



Total Available 
Supply 



19,193,667 
24,594,942 
27,474,291 
36,143,657 
48,736,917 
50,818,853 



Exports 



340,821 
285,463 
774,940 
897,686 
583,299 
900,550 



Apparent 
Consumption 



18,852,846 
24,309,479 
26,699,351 
35,245,971 
48,153,618 
49,918,303 



23 



THE PORTLAND CEMENT INDUSTRY 



THE COURSE OF CEMENT PRICES, 1875-1907 

Perhaps the most striking feature connected with the Ameri- 
can Portland Cement Industry has been the decline in cement 
prices during the past thirty years. This decline has, as a mat- 
ter of fact, been as steady and as marked as the growth in an- 
nual output. 

The following table gives the average price per barrel of 
American Portland Cement, in bulk at the point of manufacture. 
It is derived from the official figures on total output and value 
published annually by the United States Geological Survey. 

Average prices of Portland Cement, 1870-1907. 



YEAR 






AVERAGE 
PRICE 


YEAR 


AVERAGE 
PRICE 


YEAR 


AVERAGE 
PRICE 


1870-1880 . . . $3.00 i 


1892 . . 


. . . $2.11 


1900. . 


. . . $1.09 


1881 






2.50 


1893 . . 


. . . 1.91 


1901 . . 


. . . 0.99 


1882 






2.01 


1894 . . 


. . . 1.73 


1902 . . 


. . . 1.21 


1883 






2.15 


1895 . . 


. . 1.60 


1903 . . 


. . . 1.24 


1884 






2.10 


1896 . . 


. . . 1.57 


1904 . . 


. . . 0.88 


1885-1888 






1.95 


1897 . . 


. . . 1.61 


1905 . . 


. . . 0.96 


1889 






1.67 


1898 . . 


. . . 1.62 


1906 . . 


. . . 1.13 


1890 






2.09 


1899 . . 


. . . 1.43 


1907 . . 


. . . 1.11 


1891 






2.13 











In the following diagram, Fig. 2, the fall in cement 
prices during the period 1880-1907 is shown graphically. On 
a following page, in discussing the future of the industry, some 
comment will be made on the industrial and financial meaning of 
this marked decline in prices. 



24 



GROWTH AMERICAN CEMENT INDUSTRY 



$3.W 
































































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a 
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3 a 


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a 


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a 


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i « 


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3 a 
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3 a 


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3 a 


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3 a 


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3 


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Fig. 2. THE COURSE OF CEMENT PRICES, 1880-1907. 



25 



CHAPTER 
III 

THE OUTLOOK FOR THE FUTURE 

THOSE who are engaged in the active management 
of an industrial enterprise may be content, and fre- 
quently are, with securing a thorough acquaintance with 
the present status of the industry in which they are in- 
terested. Those engaged in financing such enterprises, 
however, are confronted by a different problem. To the 
banker or investor, an intimate acquaintance with the 
present details of the business is not necessary, or even 
particularly desirable ; but it is imperative that he should 
be able to form some idea of the future possibilities of 
the enterprise. The difference between the unsuccess- 
ful and the successful financier is largely a matter of 
tense ; the one considers only what a possible investment 
is worth to-day ; the other forecasts what it will be worth 
ten, or twenty, or fifty years from now. 

For this reason it is necessary, in the present con- 
nection, to attempt the difficult task of outlining the 
probabilities as to the future development of the cement 
industry. The points of greatest interest are con- 
nected with the possible future growth in output; with 
the future course of costs and of prices; and with the 
degree and method of organization which the industry 
is likely to assume. 

THE FUTURE GROWTH OF THE CEMENT 
INDUSTRY 

In attempting to gain some idea of the possible future de- 
velopment of the cement industry, so far as active output is 
concerned, recourse must be had to comparative studies, for of 
course direct evidence is not available. We have at hand all 

27 



THE PORTLAND CEMENT INDUSTRY 

the necessary facts concerning the past growth of the cement in- 
dustry, and to some small extent the past rate of growth may 
aid in making an estimate as to future possibilities. But, in the 
writer's opinion, a much more profitable line of inquiry lies in 
the study of the history of closely related industries — those con- 
nected, for example, with the production of similar staple pro- 
ducts, such as coal, pig-iron, copper or oil. The experience 
gained by producers of these materials may be of service to the 
younger industry. 

For many reasons the manufacture of pig-iron affords a 
close trade-parallel to that of cement. Both products are cheap, 
bulky, dependent on fuel supplies and freights. Both require 
heavy fixed investment in plant, as compared with the value of 
the output. Both products are used extensively in a way which 
keeps them in close sympathy with general business conditions; 
and both products are, in this country, used at a per capita rate 
which is still increasing on the average. 

In Figure 3 the growth of the iron and cement industries is 
compared graphically for the period 1890-1907. The diagram 
is, of course, distorted to the extent that, while the pig-iron pro- 
duction is given in tons of 2,240 pounds, the cement output is 
stated in barrels of 380 pounds. But this distortion does not 
affect the value of the diagram, when used simply as a means of 
readily comparing the growth-curves of the two industries. 

On examination it will be seen that the cement output has 
shown an actual increase each year to date, so that on the dia- 
gram its curve rises steadily and, until 1907, at an increasing 
ratio each year, showing no downward flexures or relapses. This 
is the normal form for the growth-curve of a young and rapidly 
expanding industry, which has not yet reached the point where 
its annual output is affected by financial conditions. The iron 
curve, on the other hand, though showing a decided gain for the 
period covered, also shows at intervals depression flexures, typi- 
cal of a mature industry, whose annual output must depend on 
the general financial and industrial condition of the country. 
It may reasonably be expected that hereafter the cement and iron 
curves will approximate in form. 

28 





































} 


1 














































































< 






45,000,000 






































































































































































































40,000,000 






































































































































































































35,000,000 
































. 






































































































































































30,000,000 


























































































































































































| 


l 7 




/ 






25,000,000 




























A 


J 


/ 


































1$ 


/ 








































/ 


































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/ 














20,000,000 


























/ 




/ 


































/ 




/ 


































-^ 


/ 




































r 


?/T 


\ 


f 
































oV/- 














15,000,000 






















?/./£ 
































4/ 


































> / 




', 
































SI 




4 
































cy 






ff 
















10,000,000 














4 








W* 






































7° 






































Lj 


i 






































/ 








































/ 




















5,000,000 


















/ 


*— 




































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t 




































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t 




































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N C 

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h c 




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3 C 

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> c 


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> s 


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PIG IRON, LONG TONS, .^.-^PORTLAND CEMENT, BARRELS 

Rg. 3. COMPARISON OF PORTLAND CEMENT AND PIG-IRON 
PRODUCTION, 1890-1907. 



29 



THE PORTLAND CEMENT INDUSTRY 

Up to 1907, the American cement industry had shown a 
practically uninterrupted progress so far as annual output was 
concerned, and many manufacturers seemed to expect that this 
pleasant condition could continue indefinitely. The number of 
plants under construction or in course of promotion increased 
rapidly, and heavy increases in productive capacity were indi- 
cated. 

In January, 1907, in discussing* conditions in the cement 
industry of 1906, the present writer took occasion to call at- 
tention to an impending change in these conditions. The state- 
ment then made was as follows : 

The cement output, as yet, has not suffered markedly from 
financial depressions. Prices have fallen off in poor years, it is 
true, but the annual output has always increased. The rise in 
yearly output from 1885 to 1906 has not only been continuous, but 
has even shown a tendency to increase its rate of increase. Of 
course such a condition of the industry cannot be expected to con- 
tinue indefinitely. Within a few years we must expect to see the 
rate of increase lowered, and finally, in some period of business 
depression, some year will show a lower output than the preceding 
year. This will mark the end of the youth of the cement industry, 
and the beginning of its period of maturity. Though the present 
condition of the industry is as prosperous as might be desired, it is 
possible that the change in rate of growth may be quite near at 
hand. New construction in 1906, and plans for 1907, will provide 
a great increase in mill capacity. If the succeeding years are gen- 
erally good, this increase will be taken up without difficulty; but a 
general financial depression in 1908 would probably result in a 
temporary check to the cement industry. So far as can be estimated 
now, the plants which will be in operation before the end of 1907 
will turn out cement at the rate of 50,000,000 barrels per annum, 
and it is doubtful whether such an output could be absorbed if the 
United States were not generally prosperous. 

When this statement was published, several cement-trade 
journals commented on it in interesting fashion. As one editor 
noted, "The absurdity of such a gloomy prophecy, at a time 
like this, is obvious to anyone acquainted with the true condi- 
tion of the cement business. The rush for cement never was 

* Engineering Magazine, January, 1907. 

30 



OUTLOOK FOR THE FUTURE 

greater than it is now. All mills are working to full capacity 
and the managers only wish that they were bigger." 

Later in 1907 the humor of the situation did not seem quite 
so obvious, and now, near the close of 1908, it seems fairly safe 
to say that the American cement industry reached a distinct 
turning point in the latter part of 1907, and that from now on 
the matter of output must be handled differently. Hereafter 
we may expect that the cement production will be related very 
closely to general business conditions ; that in times of prosperity 
we may temporarily fall behind in capacity; but that the ap- 
proach of business depression will be marked either by radical 
decrease in cement output or by its alternative — which is gen- 
eral demoralization in the trade. The cement industry has no 
longer room for poorly managed plants, or for weakly financed 
companies, for in times of industrial stress such plants and com- 
panies become a menace to the entire industry. 

POSSIBLE DECREASES IN OPERATING COSTS 

The costs of Portland Cement manufacture are, of course, 
greatly lower than during the early history of the industry. 
Part of this decrease is, of course, easily understood, being 
merely the gain shown in any well-conducted industry as its 
machines and men get gradually fitted to their work. But this 
regular economy, which is not progressive, but shows most in 
the first years, is not the explanation of the bulk of the cost re- 
duction which has been affected in cement manufacture. The 
great decreases came in three abrupt steps, coincident with radi- 
cal changes in the methods of manufacture. 

In 1885 an American Portland Cement plant would have 
shown costs somewhat larger than an English plant, due to the 
heavier American labor cost, which was not entirely compensated 
for by cheaper fuel. The general adoption of the rotary kiln 
changed this relation, and was the cause of sharp reductions 
in manufacturing costs. A second fall in costs was noticeable 
when powdered coal became the standard fuel in the rotary. 
The last progressive step in the industry — the adoption of long 

31 



THE PORT LAS D CEMENT INDUSTRY 

kilns — was taken at a time when coal and labor were becoming 
more expensive, and so far has shown a gain in output with but 
little saving in cost. 

So long as there are no absolutely revolutionary changes in 
our present methods of cement manufacture, no marked decreases 
in operating costs can be expected. Improvements in grinding 
machinery can offer little in the way of cost reduction so long- 
as the total amount of grinding to be done remains the same. 
The main elements in the problem are unfortunately fairly well 
determined by nature. To make 400 pounds of cement we must 
burn about 200 pounds of coal, and pulverize almost 1,100 
pounds of material — raw mix, clinker and kiln coal. As coal 
can hardly be expected to decrease in price in the future, and 
as the other elements of cost are practically unchangeable, there 
is little room left for further economies. It seems safe to say 
that the manufacturing costs at well-conducted plants reached 
in 1904, 1905 and 190S low levels, which can hardly be lowered 
in the near future. Until very radical changes in cement manu- 
facture take place, further important decreases in manufacturing 
costs can hardly be expected. 

THE FUTURE COURSE OF PRICES 

The Portland Cement Industry is now an industry character- 
ized by moderate and decreasing returns to the investor. This 
condition is caused by the fact that while free competition is 
slowly but steadily pushing downward the selling prices of the 
product, manufacturing costs on the other hand are almost 
stationary. On a preceding page some attention was paid to 
the possibility of future radical decreases in costs. At present 
it will be more profitable to consider how far it is possible to 
regulate prices. 

It will first be necessary to revert for a moment to the sta- 
tistical data presented in Chapter II and to see what light the 
past historv of unregulated prices may throw upon the future 
possibilities in this line. The first thing of note is the extent 
of the price-decline, for we see that cement has fallen during 

32 



OUTLOOK FOR THE FUTURE 

less than thirty years from a maximum of over three dollars per 
barrel to a minimum of considerably less than one dollar. In 
American industrial history the fall in prices most nearly com- 
parable to this is that shown by steel rails from 1867 to 1898, 
when an almost unchecked decline was witnessed from $166 to 



PRICES OF STEEL RAILS PER TON, PITTSBURG: 

£ <* * * 



1870 



1875 



1880 



o 1895 

m 

o 



^1900 

CO 

w 1905 
S 1907 











































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PRICES OF CEMENT PER BARREL, IN BULK AT MILL. 



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33 



THE PORTLAND CEMENT INDUSTRY 

$18 per ton. The two sets of results are shown diagrammatic- 
ally in Fig. 4, and will repay study. The price-history embodied 
in the steel-rail diagram shows clearly that in these days of 
large-scale production prices will at intervals plunge below the 
level of actual manufacturing cost, and that no natural agencies 
can be relied on to prevent these periodic disasters. The dia- 
gram also shows the result of spasmodic efforts at price regula- 
tion, which finally became effective in 1901. There is no reason 
to believe that cement prices, unassisted, will show any greater 
resistance to downward pressure than did those of steel rails 
during their long decline. 

On examining more closely the table of annual cement prices 
or, better, the diagram on page 33 it will be seen that the de- 
cline has not been steady, but that the price-history of the 
American Portland Cement industry can be divided into four 
periods. In each of these periods price movements were fairly 
close around an average. In each case the average seemed low 
enough, looking backward at periods of higher prices; but in 
each case the next period showed a still lower range of prices. 
The matter is summarized in the following table: 



PERIOD 


DURATION 


AVERAGE PRICE 


1874—1880 
1881—1894 
1895—1899 
1900—1907 


7 years 
14 years 

5 years 

8 years 


$3.00 
2.01 
1.56 
1.07 



In considering these figures, it must be borne in mind that 
they are averages for the entire United States, and that the aver- 
age prices secured by Eastern mills will usually range from ten 
to fifteen cents per barrel lower than the average for the whole 
country. 

The lowest average price for the United States was reached 
in 1904, when 88 cents per barrel was received. If the crisis 
of 1907-8 had been of greater intensity, or even if it proves 
to be of greater duration than now seems probable, there is 
little doubt that a new low average would be recorded. 

34 



OUTLOOK FOR THE FUTURE 



POSSIBLE PRICE REGULATION 

The necessity for some reasonable degree of price regulation 
in the cement industry would, in view of these facts, seem to be 
obvious enough. It must not be overlooked that this condition 
is not peculiar to this particular industry, but that it exists 
everywhere in modern production. In a recent study of the 
trust movement in British industry, McCrosty has summarized 
strikingly the underlying conditions, under a regime of unre- 
stricted competition, which inevitably tend to bring about some 
degree of combination or unified control in all modern manu- 
facturing industries. His words are so clearly applicable to 
the present condition of the American Cement Industry that it 
seems justifiable to quote them at length: 

With every improvement in transport the market becomes wider 
and competition becomes keener through the advent of new pro- 
ducers, while at the same time it becomes more difficult to make 
rational forecasts of the course of trade. Even within tariff walls 
competition always rages as soon as it is discovered that there are 
certain industries to which the law has assigned the possibility of 
greater profits than the average. Alike in protected and unpro- 
tected markets free competition becomes cut-throat, prices fall, and 
over-production ensues in the wild efforts of producers to reduce 
costs by a larger output. . . . One might say that the normal 
course of modern trade was that prices should always tend 
toward the cost of production, that this tendency developed itself 
with increasing speed, and from time to time ended in production 
at a loss. Now whatever one may say about a "social contract," or 
the working out of the welfare of society through the clashing self- 
interest of individuals, the fact remains that the first object with 
which a man enters business is to make money, and his second to 
make as much as he can. Similarly a workman wants first to get 
a subsistence wage, and next as high a wage as he can. And if 
any social institutions or trade methods stand in the way there will 
be a revolt. Such a revolt in a multitude of forms we are now 
witnessing 

The simplest form of price regulator is, of course, the pool. 
At present, however, pools are without legal protection, and 
sad experience in both railroad and iron affairs has shown that 

35 



THE PORTLAND CEMENT INDUSTRY 

the so-called "gentlemen's agreement" has a short life, failing 
to develop either agreement or gentlemen. It is of course pos- 
sible that the Sherman law may be so modified, or so re-inter- 
preted, as to afford legal remedies for broken price agreements, 
but as things are now no form of pool can be considered durable. 
The inherent difficulty arises from the fact that the pool is 
simply a temporary device, and that the interests of the members 
often clash. The usual history of such arrangements has been 
that the pool was formed during a period of unduly low prices, 
when everybody was willing to agree to anything; that prices 
were advanced to remunerative levels, and finally to excessive 
levels ; and that as soon as this caused a slackening in demand 
price-cutting became obvious. The ordinary excuse for the 
first cut is the necessity for meeting a temporary intense local 
competition by some non-member ; after the first, no one has time 
to make excuses. 

During the past thirty years the American natural cement 
industry has developed a number of pools, some of very simple 
type while others had a complex organization and considerable 
stability. In the Portland Cement Industry local price-agree- 
ments are formed at intervals, but heretofore none of these has 
had any great length of life. 

It must be borne in mind that, in order to justify any system 
of price regulation, it must exercise control in both directions, 
repressing excessive upward movements as well as steadying 
prices during times of depression. It can fairly be claimed that 
this has been accomplished in the steel trade, and the purchaser 
of steel products is now assured against wild fluctuations in 
prices either wa} T . As a matter of fact few purchasers of any 
semi-finished product like cement, pig iron or steel, care much 
whether prices are high or low; they are chiefly interested in 
knowing that they are steady and open, so that all competing 
purchasers will be placed on a practically equal basis. 

Since all of our industrial history has established the inef- 
fectiveness of any possible form of simple pooling to maintain 
prices of any commodity at reasonably profitable levels, it is 
clear that some other type of price regulation must be expected 

36 



OUTLOOK FOR THE FUTURE 

to appear in the cement industry. At present it is difficult to say 
just what form the final regulating process will take, for the 
Portland Cement Industry of this country affords a peculiarly 
interesting example of an important and growing branch of 
manufacture whose future organization and control is still a 
matter of uncertainty. During the past few years, however, 
two distinct movements in the trade have become noticeable, and 
one or both of these may aid in the solution of the problem. The 
first, which is the normal occurrence in any industry containing 
a large number of independent competitive units, is the gradual 
growth of community of interest, which by increasing the size 
of some of the units, or by decreasing their number, aids in giv- 
ing stability to the market. The second important movement is 
towards a control of the trade through the ownership of patents. 
This form of regulation, though not entirely new in American 
industrial history, is still much rarer than the other type. 



CONCENTRATION OF INTEREST IN THE CEMENT 
INDUSTRY 

Ten or even five years ago the business of making Port- 
land Cement in the United States was confined to a number of 
comparatively small mills, each of which was practically inde- 
pendent. To-day there is a noticeable degree of concentration 
of interest in the industry, and three processes are at work to 
increase steadily this concentration. Owing to the peculiar 
character of the industry, the final result is still a matter of much 
doubt. It is clearly impossible for any one organization to gain 
control of the supply of raw materials, so that in this industry 
the most effective basis for monopoly is not available. The 
ownership of comprehensive basic patents would, as noted later, 
afford a peculiarly serviceable type of control, inasmuch as 
patent monopolies are thoroughly legal in form. 

Setting aside for the moment the possibility of monopoly, it 
can be said that the three factors which make for concentration 
of control are — 

37 



THE PORTLAND CEMENT INDUSTRY 

1. The normal growth of profitable plants. 

2. Consolidation by stock control. 

3. The growth of the patent-holding company. 

A well-located and well-managed plant always has opportunity 
for expansion which is denied to plants of less technical or finan- 
cial soundness. Many plants in this country have had oppor- 
tunities for growth, and some have seized these opportunities. 
Plants which are built or extended at the height of a boom period, 
and companies which pay out all the profits of prosperous years 
as dividends can hardly expect to share in this growth. For in 
by far the majority of instances, lack of growth in a cement 
plant has been due, not to defective raw materials or to lack of 
technical skill, but to unwise financial management either at the 
inception or during the active life of the company. 

Several strong groups of plants connected by stock control 
rather than by direct ownership are now in existence. Of these 
the most important is the Iola or Nicholson group, which con- 
trols seven plants, mostly in the Kansas district. A second im- 
portant group is that controlled by Mr. W. J. Dingee and his 
associates, including plants in California, Washington, and Penn- 
sylvania. The Cowham series of plants located in Michigan, 
Iowa, Kansas, and Texas also requires notice in this connection, 
and a number of smaller examples of "community of interest" 
are known to exist. 



THE INFLUENCE OF PATENTS ON THE CEMENT 
INDUSTRY 

The Portland Cement Industry, in its present form, is a 
comparatively recent development and owes much of its mechani- 
cal perfection to the efforts of American inventors. As a result 
of its recent origin, cement machinery and cement-making pro- 
cesses have been the subjects of innumerable patents, while older 
industries are more nearly free from comprehensive claims. 
While many mechanical details are of course covered by minor 
patents, those claims which are likely to have any serious effect 

38 



OUTLOOK FOR THE FUTURE 

on the future of the industry may for convenience be grouped 
as follows: 

1. Patents relating to specialized types of grinding machinery. 
Patents of this type are numerous, and many are sound and valu- 
able. Their only effect, however, is to slightly increase the cost 
of such machinery; and as the best representatives of the various 
classes of grinders are fairly well-matched in efficiency, the net 
result on the industry is small. 

2. Patents relating to the burning process. This group includes 
many and important claims covering kiln details, fuel burning 
methods, etc. Some of these patents have, as noted below, exercised 
an important influence on the industry, and may become of still 
greater importance. 

3. Patents on special products. Many patents have been issued 
covering cements differing more or less from the normal Portland 
type. Typical cases, for example, are the high-iron marine ce- 
ments, the low-iron white cements, the high-magnesia cements, etc. 
Though valuable for certain uses, few of these special cements can 
be expected to exercise any appreciable influence on the general 
Portland Cement Industry. Their unimportance in this respect is 
largely due to the fact that most of them are more expensive to 
manufacture than an ordinary Portland. If it should develop, how- 
ever, that some one of these special products could be made more 
cheaply than a normal Portland, the case would be very different. 

4. Patents covering by-products. Claims for the recovery of 
valuable by-products, notably sulphur and the alkalies, are numer- 
ous; but so far none of these processes has proven to be of much 
practical importance. 



THE GROWTH OF THE PATENT-HOLDING COMPANY 

Numerous patents have been taken out in connection with 
various phases of the cement industry, but it is only within the 
last two years that the patent question has become of the first 
importance to the cement industry. This recent development is 
due to the organization and growth of a great patent-holding 
corporation. 

Late in 1906 the North American Portland Cement Company 
was organized, with a capital stock of $10,000,000, this stock 
being held by the Atlas, Alpha, American, Lawrence, Lehigh, 

39 



THE PORTLAND CEMENT INDUSTRY 

and Vulcanite cement companies. The North American Com- 
pany took over from the Atlas Portland Cement Company the 
United States rights to the Hurry and the Seaman patents, which 
cover certain methods for the burning of pulverized coal in 
cement kilns. At a later date it acquired the Edison long-kiln 
and the Carpenter patents. The companies now licensed under 
this system include the six companies which control the North 
American and also the Whitehall, Northampton, Dexter, Edison, 
Nazareth, Pennsylvania, Penn-Allen, Catskill, Buckhorn, 
Phoenix, Bath, and Glens Falls Portland Cement companies. In 
January, 1907, these licensed companies organized as the Asso- 
ciation of Licensed Cement Manufacturers. The following ma- 
terial is quoted from a statement then issued: 

The purposes of the association include the general betterment 
of the mechanical and chemical processes used in making cement, 
the improvement of the quality of cement, dealing with matters of 
traffic and shipment and the establishment of an association labora- 
tory for technical tests and experiments. It is understood that all 
existing and properly equipped cement plants will be granted 
licenses and admitted to membership. Infringers of the patents 
above referred to will be rigorously prosecuted. 

Nearly 70 per cent, of the output of the Portland Cement indus- 
try in this country is already represented by the association, this 
being double the annual production in Great Britain, the pioneer 
Portland Cement manufacturing country, equal to the combined 
output of England and France, and in excess of that of Germany. 

The Association of Licensed Cement Manufacturers, with its 
facilities for tests and experiments, its investigation of mechanical 
and chemical problems, its establishment of standards of quality, 
and its assistance in obtaining proper shipping facilities and rates, 
is expected to be of great benefit to its members. 

PRESENT STATUS OF CONCENTRATION IN THE 
INDUSTRY 

The facts discussed in preceding paragraphs may be sum- 
marized as in the schedule below, which is an attempt to indicate 
the groupings at present existing in the domestic Portland Ce- 
ment industry. This table is based on information supplied by 

40 



OUTLOOK FOR THE FUTURE 

those in control of most of the plants mentioned, and is believed 
to be substantially free from error. 

Present groupings in the Portland Cement Industry in the United States 

names of companies location of plants 

1. North American Portland Cement Company: 

Alpha Portland Cement Company Alpha, N.J. ; Martins 

Creek, Pa. 
Martins Creek Portland Cement Company Martins Creek, Pa. 

American Cement Company Egypt, Pa. 

Central Cement Company Egypt, Pa. 

Reliance Cement Company Egypt, Pa. 

Tidewater Cement Company Norfolk, Va.o 

Atlas Portland Cement Company Northampton, Pa.; Han- 
nibal, Mo. 

Lawrence Cement Company Siegfried, Pa. 

Lehigh Portland Cement Company Ormrod, Pa. ; Wellston, 

Ohio; Mitchell, Ind. 

Shenango Portland Cement Company Newcastle, Pa. 

Vulcanite Portland Cement Company Vulcanite, N.J. 

2. Nicholson or Iola group: 

Iola Portland Cement Company Iola, Kan. 

United Kansas Portland Cement Company: 

Kansas Portland Cement Company Iola, Kan. 

Independence Portland Cement Company Independence, Kan. 

Indian Portland Cement Company Neodesha, Kan. 

Dixie Portland Cement Company Copenhagen, Tenn. 

Iowa Portland Cement Company Des Moines, Iowa.a 

Texas Portland Cement Company Dallas, Tex. 

3. United States Steel Corporation: - "j 

Universal Portland Cement Company Chicago, 111.; Buflington, 

4. Dingee group: Ind - Pittsburg, Pa. 

Standard Portland Cement Company Napa Junction, Cal. 

Santa Cruz Portland Cement Company Santa Cruz, Cal. 

Northwestern Portland Cement Company. . Kendall, Wash.o 

Atlantic Portland Cement Company Stockertown, Pa.o 

Northampton Portland Cement Company.. Stockertown, Pa. 

Quaker Portland Cement Company Sandts Eddy, Pa.o 

5. Cowham group: 

Peninsular Portland Cement Company Cement City, Mich. 

Southwestern States Portland Cement Com- Dallas, Tex.o 
pany 

Western States Portland Cement Company. Independence, Kan. 

Northwestern States Portland Cement Com- 
pany Mason City, Iowa.o 

6. Sandusky Portland Cement Company Bay Bridge, Ohio; Dixon, 

111. ; Syracuse, • Ind. ; 

7. Cement Securities Company: York, Pa. 

Portland Cement Company of Colorado Florence, Colo. 

Portland Cement Company of Utah Salt Lake, Utah. 

Union Portland Cement Company Devil's Slide, Utah. 

a Plants thus designated are not yet in operation. 
41 



THE PORTLAND CEMENT INDUSTRY 

The table above does not include all the Portland Cement 
companies of the United States, but simply those which have 
shown some degree of concentration of interest, or of growth 
in several localities. The Steel Corporation and Sandusky Port- 
land Cement Co. are included for this latter reason, for while 
they are single companies, so far as organization is concerned, 
each of them has in operation a number of widely separated 
plants. 

IMPROVEMENTS IN MARKETING CONDITIONS 

Regardless of what may be effected along the line of price 
regulation, it is probable that marketing conditions will, in the 
near future, be improved in some respects. Among the points 
to which attention may be directed in this field are the elimina- 
tion of the "optional contract," the development of a warrant 
system, and the establishment of fixed basing points for quota- 
tions. The first of these appears to be a necessity, while the 
other two are at least open to discussion as to their worth in the 
cement trade. 

Since its commencement in this country the Portland Cement 
Industry has suffered, in common with all other lines of manu- 
facture dealing with basic staples under a highly competitive 
regime, from a lax regard for contract obligations by pur- 
chasers. A buyer, placing a future order for cement or iron, 
felt apparently no obligation to take the product if the market 
price fell in the meanwhile. A contract was treated precisely as 
if it had been a free option, to be called only if prices advanced. 
The worst feature of the situation was that, even when a buyer 
had cancelled such a "contract" because prices went against him, 
he felt perfectly assured that the lapse would not be remembered 
when he next wished to make a similar "contract," for the pres- 
sure of competition prevented too close scrutiny of a purchaser's 
record in this line. It is a fair assumption that the first result 
of increasing concentration of control in the cement industry will 
be to eliminate this abuse, as has been done in other lines. 



42 



OUTLOOK FOR THE FUTURE 

THE DEVELOPMENT OF THE EXPORT TRADE 

Ten years ago, when the American market was capable of 
absorbing all of the domestic cement output, even during times 
of general business depression, the export trade received scant 
attention, and deserved little. To-day, when depression means 
complete shutdown to many cement mills, the situation is very 
different, and a marked effort to develop foreign trade may be 
expected. 

The countries to the south of the United States are, in gen- 
eral, scantily supplied with fuel, and few of the existing Span- 
ish American coal-fields are well located with regard to trans- 
portation routes and markets. For this reason alone, these areas 
offer a very favorable field for cement exports from the United 
States, and as their development progresses this field may be ex- 
pected to expand rather than to contract. 

While a competitive export trade is not of itself as profitable 
as a home market, it affords a valuable balance-wheel to domes- 
tic trade-conditions. Under modern conditions, there is always 
surplus capacity in the manufacture of staples. With depres- 
sion at home, the surplus becomes disastrous, unless there is some 
way of disposing of it elsewhere, at or under cost if need be. 

SUMMARY OF FUTURE PROSPECTS 

So much of detail has necessarily been introduced into the 
preceding discussion of the future prospects of the cement in- 
dustry that it may be well to close the discussion with a brief 
summary covering the more important points that have been 
brought out. 

As regards actual annual output, we may fairly expect this 
to increase as population increases, and as new uses are found 
for the product. But we cannot reasonably expect that this in- 
crease will, in the future, be as steady as it has been in the past. 
It is far more probable that the future course of the trade will 
be marked by successive periods of high and low output, cor- 
responding to the condition of general business at the time. 

Prices will, if left to absolutely unrestricted competition, 

43 



THE PORTLAND CEMENT INDUSTRY 

tend to fall to a point which yields a fair profit only to the larg- 
est and best mills. The future decrease in prices, however, can 
not be comparable in amount to that which has already been 
experienced, since manufacturing costs show little prospect of 
marked decrease. 

Under the stimulus of decreased profits for the better mills, 
and of actual losses for the mills which are more poorly located 
or operated, some attempt at regulation of output and prices 
may be expected. Such regulation may be made effective through 
simple pooling, through patent control, or through closer con- 
solidation, the two latter methods offering the greater possibili- 
ties in this line. 



CHAPTER 
IV 

FACTORS INFLUENCING THE VALUA- 
TION OF CEMENT SECURITIES 

THE Portland Cement industry is a manufacture 
based upon extremely complicated and delicate 
chemical and mechanical processes, and it would be im- 
possible in this volume to attempt any detailed descrip- 
tion of the various stages in the manufacture of the 
product. It is desirable, however, to call attention to 
certain characteristics of the industry which are directly 
connected with its profits and with the valuation of ce- 
ment securities; and to point out the bearing of these 
industrial factors on the financial side of the matter. 

SUMMARY OF CEMENT MANUFACTURE 

At the outset it is well to consider very briefly what sort of 
a product we are engaged in making and selling, and to en- 
deavor to form some general idea of how it is made. 

Portland Cement is an entirely artificial or manufactured 
product, made by burning a finely ground artificial mixture con- 
sisting essentially of lime, silica, alumina, and iron oxide, in cer- 
tain definite proportions. Usually this combination is made by 
mixing limestone or marl with clay or shale, in which case about 
three times as much of the lime carbonate should be present in 
the mixture as of the clayey materials. The burning takes place 
at a high temperature, approaching 3,000° F., and must there- 
fore be carried on in kilns of special design and lining. During 
the burning, combination of the lime with silica, alumina, and 
iron oxide takes place. The product of the burning is a semi- 
fused mass called clinker, and consists of silicates, aluminates, 
and ferrites of lime in certain definite proportions. This clinker 

45 



THE PORTLAND CEMENT INDUSTRY 

must be finely ground. After such grinding, the resulting pow- 
der is Portland Cement. 

The finished product is blue to gray in color, has a specific 
gravity of 3 to 3.25, and when mixed with water will harden or 
set. 

The product must be uniform in composition and quality; 
and as the processes of manufacture involve certain chemical 
as well as physical changes, four points may be regarded as of 
cardinal importance in making Portland Cement. These are : 

1. The cement mixture must be of the proper chemical and 
physical composition; 

2. The raw materials of which it is composed must be finely 
ground and intimately mixed before burning; 

3. The burning must be conducted at the proper temperature; 

4. After burning the resulting clinker must be finely ground. 

From this summary it will be seen that we must deal first with 
certain natural raw materials, and then with certain mechanical 
and chemical processes which will produce from the raw materials 
a definite chemical product. The raw materials are quarried, 
mixed, ground, burned and reground — and when stated in this 
general way the manufacture of Portland Cement can be seen to 
be a very simple proceeding. In practise it is a little more dif- 
ficult. 

THE ELEMENTS OF PLANT LOCATION 

In selecting a location for a new cement plant, or in attempt- 
ing to put a valuation on a location already selected, a number 
of distinct and to some extent independent factors are involved, 
all of which should be given due consideration. The more im- 
portant of these factors are : 

1. Chemical composition of the raw materials available. 

2. Physical characters of the raw materials. 

3. Amount of the raw materials available. 

4. Location of the proposed site with reference to transportation 
routes. 

5. Location with respect to fuel supplies. 

6. Location with respect to markets. 

4 6 



VALUATION OF CEMENT SECURITIES 

7. Location with respect to competition, both present and 
potential. 

8. Location with respect to labor supply. 

Ignorance of the respective importance of these factors fre- 
quently leads to an overestimate of the value of some particular 
plant location, or to the acceptance of an inferior location when 
a better one might readily be secured. 

When a successful existing company is looking out for a 
location for a new mill, it will generally, warned by experience, 
make sure of the points covered in the above schedule. It will 
endeavor to put the mill where it will pay the greatest returns 
on the investment, as its interest is in the success of its business, 
and not in the booming of any particular piece of property. 
Even under these conditions, however, we have had instances of 
some remarkably bad new locations selected by previously suc- 
cessful companies. 

It is when we deal with "promoted" plants, however, whether 
the promotion be fraudulent or simply foolish, that the most 
striking instances of bad location are found. This is due to 
the fact that the promoter invariably begins at the wrong end 
of the problem. Instead of selecting first the general territory 
in which he wishes to build a plant, and then by careful study 
picking out the best possible location in that territory, the pro- 
moter usually begins by buying a piece of limestone land be- 
cause it is cheap, or because it is located in or near a town whose 
Board of Trade will offer "suitable inducements to new indus- 
tries," or because it is near an established and successful plant. 
Now, as a matter of fact, these three reasons for his selection of 
a site may be good enough for the promoter, but it is obvious 
that not one of them has the remotest possible bearing on the 
earning power of the plant. 

It will be found on examining the average cement prospectus 
that it usually contains statistics regarding the past growth of 
the cement industry, more or less truthful statements concerning 
the profits of cement manufacture, a few analyses of the raw 
materials to be used at the proposed plant, and attractive esti- 
mates as to earnings and dividends. Little or nothing definite 

47 



THE PORTLAND CEMENT INDUSTRY 

will be said regarding shipping facilities, fuel costs, labor sup- 
ply, markets, and competition. And yet these are the important 
things to be considered, and until the investor is assured that 
the proposed location is satisfactory in these particulars he is 
not in a position to judge as to the value of the securities offered 
him. The following paragraphs summarize the main points on 
which he should secure accurate information before becoming 
deeply involved in the proposition. 

Before going further it is necessary to say that in every case 
the burden of proof must be on the promoter. We have gotten 
past the stage where new plants, dumped down at random over 
the United States, will prove profitable. In every case the man 
who proposes to build a new plant must be able to give clear and 
definite reasons why a plant of a certain size should be built at 
that particular location. If these reasons can be given, then the 
only questions which remain relate to the ability and honesty of 
the management. If these reasons cannot be given, no sane man 
should consider risking his money in a plant in Nebraska, for 
example, simply because another plant in Pennsylvania has made 
money. 

RAW MATERIALS AND THEIR VALUATION 

Very erroneous ideas appear to be current concerning the 
value of deposits of cement materials. It should be clearly under- 
stood that in most parts of the United States excellent cement 
materials are common, and that the commercial value of unde- 
veloped deposits of such materials is necessarily slight. In most 
of the Eastern, Southern, and Middle Western states there is no 
difficulty whatever in securing lands containing limestones suit- 
able for cement manufacture at prices ranging from $5 to $50 
per acre, and it is only exceptional circumstances which would 
allow any^ cement deposit to be valued at more than the latter 
price. As indicated on a previous page, the value of the loca- 
tion depends less upon the character of the materials than upon 
other factors. 

The characteristics of a deposit of raw material necessary to 

4 8 



VALUATION OF CEMENT SECURITIES 

justify the erection of a Portland Cement plant may be briefly 
stated as follows : 

1. The raw material must he of correct chemical composition 
for use as a cement material. 

2. Its physical character must be such that the operations of 
quarrying, drying and grinding can be carried on at a minimum 
cost. 

3. The size of the deposit must be great enough to keep a large 
plant supplied with material for at least twenty years. 

These characteristics may be now discussed at somewhat 
greater length. So far as the chemical composition of the raw 
material is concerned, there is usually little room for doubt. 
Good raw materials are so common everywhere that few promot- 
ers offer a proposition distinctly bad in this respect. That is to 
say, it is usually possible to make Portland Cement, in some way, 
at the location which the promoter has selected. But on the other 
hand, it is frequently the case that the actual operations of 
manufacture develop defects in the raw materials — defects 
slight in appearance, and readily overlooked during a hasty pre- 
liminary examination, but which are sufficient to make the ce- 
ment either poor in grade or unnecessarily costly to manufac- 
ture. A number of recent Southern promotions, for example, 
contemplate the use of a raw material whose high percentages of 
alumina result in the making of a low-grade cement, while its 
moisture content makes operating costs high. In other localities 
variable or excessive percentages of magnesia have developed 
after operation has commenced, and similar chemical defects 
appear in many propositions. 

In going over a report or prospectus dealing with this phase 
of the subject, the following points may profitably be borne in 
mind. 

The material, if a limestone, must contain as small a per- 
centage as possible of magnesium carbonate. Under present con- 
ditions 5 or 6 per cent of magnesium carbonate is the maximum 
permissible. Free silica, in the form of chert, flint, or sand must 
be absent, or present only in small quantities, say 1 per cent or 
less. If the limestone is a clayey limestone or "cement rock," the 

49 



THE PORTLAND CEMENT INDUSTRY 

proportion between its silica and its alumina and iron should fall 
within the limits. 



SiO, 



Al 2 3 +Fe 2 : 



2. and 



SiQ 2 



Al 2 3 +Fe 2 : 



3.5 



A clay or shale should satisfy the above equation and should 
be free from sand, gravel, etc. Alkalies and sulphates should, 
if present, not exceed 3 per cent or so. 

The nearer a limestone approaches in composition to the mix- 
ture used in Portland Cement manufacture the greater its value 
for that purpose, for it will require the addition of less extrane- 
ous material to make the mixture absolutely correct in composi- 
tion. The following are analyses of Portland Cement mixtures, 
ready for burning, as used at various large cement plants in the 
United States: 



Analyses of Portland Cement Mixtures 



1. 


2. 


3. 


12.85 


12.92 


13.52 


4.92 


4.83 


6.56 


1.21 


1.77 




76.36 


75.53 


75.13 


2.13 


4.34 


4.32 



4. 



Silica (Si0 2 ) 

Alumina (A1 2 3 ) 

Iron oxide (Fe 2 3 ) 

Lime carbonate (CaC0 3 ) . . . , 
Magnesium carbonate (MgC0 3 ) 



14.94 
2.66 
1.10 

75.59 
4.64 



It will be seen that the usual mixtures carry from 75 to 77 
per cent of lime carbonate. Bearing this in mind, it will be ob- 
vious that there is a great advantage in using, as one of the raw 
materials, a limestone of about this degree of purity. If rock 
of this composition occurs in sufficient quantity, it would require 
but little admixture of other materials to keep the cement correct 
in composition. 

For present purposes it will be sufficiently accurate to con- 
sider that a Portland Cement mixture, ground and ready for 
burning, will consist of about 75 per cent of lime carbonate 
(CaC0 3 ) and 20 per cent of silica (Si0 2 ), alumina (A1 2 3 ) and 
iron oxide (Fe 2 3 ) together, the remaining 5 per cent includ- 



50 



VALUATION OF CEMENT SECURITIES 

ing any magnesium carbonate, sulphur, and alkalies that may be 
present. 

The essential elements which enter into this mixture — lime, 
silica, alumina, and iron — are all abundantly and widely dis- 
tributed in nature, occurring in different forms in many kinds of 
rocks. It can therefore be readily seen that, theoretically, a sat- 
isfactory Portland Cement mixture could be prepared by com- 
bining, in an almost indefinite number of ways and proportions, 
many possible raw materials. Obviously, too, we might expect 
to find perfect gradations in the artificialness of the mixture, 
varying from the one extreme where a natural rock of absolutely 
correct composition was used, to the other extreme, where two or 
more materials, in nearly equal amounts, are required to make a 
mixture of correct composition. 

The almost infinite number of raw materials which are theo- 
retically available are, however, reduced to a very few in practise 
under existing commercial conditions. The necessity for making 
the mixture as cheaply as possible rules out of consideration a 
large number of materials which would be considered available 
if chemical composition was the only thing to be taken into ac- 
count. Some materials, otherwise suitable, are too scarce; some 
are too difficult to pulverize to the fineness necessary to bring 
about the requisite chemical combination of the mixture in the 
kiln. In consequence, a comparatively few combinations of raw 
materials are actually used in practise. 

In certain localities deposits of argillaceous (clayey) lime- 
stone or "cement rock" occur, in which the lime, silica, alumina, 
and iron oxide exist in so nearly the proper proportions that only 
a relatively small amount (say 10 per cent or so) of other ma- 
terial is required in order to make a mixture of correct composi- 
tion. 

In the majority of plants, however, most or all of the neces- 
sary lime is furnished by one raw material, while the silica, alu- 
mina, and iron oxide are largely or entirely derived from another 
raw material. The raw material which furnishes the lime is 
limestone, chalk, or marl, while the silica, alumina, and iron oxide 
of the mixture are derived from clay, shale, or slate. 

51 



THE PORTLAND CEMENT INDUSTRY 

In the following table the production of Portland Cement in 
the United State? is classified according to the kinds of raw ma- 
terials from which the cement was manufactured. 

The production is grouped as follows : 

Type 1 includes cement produced from a mixture of argillaceous 
limestone ("cement rock") and pure limestone. This is the com- 
bination of materials used in all the cement plants of the Lehigh 
district of Pennsylvania and New Jersey, and also at several 
Western plants. 

Type 2 includes cement made from a mixture of comparatively 
pure limestone with clay or shale. This mixture is employed at 
many plants ail over the United States. 

Type 3 includes cement manufactured from a mixture of marl 
and clay. This type of mixture is used only in the states of Mich- 
igan. Ohio. Indiana and New York. 

Type 4 includes Portland Cement manufactured from a mixture 
of limestone and blast-furnace slag. 

Production, in barrels, and percentage of total output of 

Portland Cement in the United States according to 

type of material used, 1898-1907. 

Type 1 Argillace- 
ous limestone (ce- Type 2. Limestone Types. Marl and Type 4. Slag and 
ment rock and and clay or shale. cl^.y. limestone. 



Year 



pure limestone. 



Per- Per- Per- Per- 

Quantity cent- Quantity cent- Quantity cent - Quantity cent- 
aze age age age 



1898 . 


2.764.694 


74.9 365.408 


9.9 


562.092 


15.2 . . . . . 




1899 


4,010,132 


70.9 546,200 


9.7 


1,095,934 


19.4 . . . . . 




1900 


5,960,739 


70.3 1. 034. 041 


12.2 


1,454.797 


17.1 32.-145 


0.4 


1901 


8,503,500 


66.9 2.042.209 


16.1 


2.001.200 


15.7 164.316 


1.3 


1902 


10,953,178 


63.6 3,738,303 


21.7 


2,220,453 


12.9 318,710 


1.8 


1903 


12,493,694 


55.9 6,333,403 


28.3 


3,052,946 


15.7 462,930 


2.1 


1904 


15,173,391 


57.2 7,526.323 


28.4 


3,332.573 


12.6 473,294 


1.8 


1905 


18,454,902 


52.411,172,389 


51.7 


3,884,178 


11.0 1,735,343 


4.9 


1906 


23,896,951 


51.416,532.212 


35.6 


3,958,201 


S.5 2.076.000 


4.5 


1907 


25,859,095 


53.0 17,190.697 


35.2 


3,606,598 


7.4 2,129,000 


4.4 



GEOGRAPHIC DISTRIBUTION OF CEMENT 
MATERIALS IX THE UNITED STATES 

It is of course impossible to discuss this subject within the 

limits permissible in this chapter, for any satisfactory treatment 

52 



VALUATION OF CEMENT SECURITIES 

of it would require hundreds of pages, while the scope of the 
present report is necessarily restricted. Detailed descriptions of 
this character are contained in Bulletin 243 of the United States 
Geological Survey. This bulletin, which was published a few 
years ago, but was soon out of print, is now being rewritten and 
will be issued in an entirely revised form as soon as possible. In 
order to fill the requirements of the present report, an attempt 
has been made to summarize in the following schedule the main 
facts regarding the occurrence or non-occurrence of the more 
important cement materials in the various states. 

Occurrence of the more important cement materials, by states. 



State 



RawMaterials 


Fuels 


*S 1 . 




















co co ! <d 




















B 13 


f» m 


B n 








be o 


^•3 


!Z « 








efl-g 

S 4) 




o 








th 


on w 

2 


4-> DO 


e3 

o 


- 


c§ 


j 


fe 


« 


U 


o 


o 



State 



RawMaterials 



go 



d « s a 

P "C i — ■ <u 

i cS I— B 



Fuels 



"3 « 

OJ Oi O 



Alabama 

Arizona . 

Arkansas 

California 

Colorado 

Connecticut 

Delaware 

Florida . 

Georgia . 

Idaho . . 

Illinois 

Indiana . 

Iowa . . 

Kansas 

Kentucky 

Louisiana 

Maine . . 

Maryland 

Massachusetts 

Michigan 

Minnesota 

Mississippi 

Missouri . 

Montana 



C C 
A A 



A 

[A 
|A 
C A 
A 





c 




c 






o 


A ! 

A 

A 
A 











Nebraska . . 
Nevada . . . 
NewHampshire 
New Jersey . 
New Mexico . 
New York . . 
North Carolina 
North Dakota 
Ohio .... 
Oklahoma . . 
Oregon . . . 
Pennsylvania 
Rhode Island 
South Carolina 
South Dakota 
Tennessee 
Texas . . 
Utah . . 
Vermont 
Virginia . 
Washington 
West Virginia 
Wisconsin . . 
Wyoming . . 






B 
































C 

















c 





A 








c 





A 


c 








c 








A 





A 


A 





B 


A 


A 








c 











A 


A 

















B 











B 














A 


c 





A 


c 


A 








A 




















A 


A 











c 











A 


A 


c 














B 


A 


A 

1 



In this table four symbols are used to denote various degrees 
of abundance or rarity. A indicates the occurrence of large and 



53 



THE PORTLAND CEMENT INDUSTRY 

widely distributed deposits; B indicates the occurrence either of 
a few large deposits or of a number of small ones; C indicates 
the occurrence of a few small deposits only ; indicates that the 
material is either absolutely wanting or is so scarce as not to be 
of any possible commercial importance. 

In regard to the fuel supplies noted in the table, a word of 
caution is necessary. The term "coal" is here limited to such 
coals as can be used in cement manufacture with reasonable 
economy. Peat, lignite, and many Western "coals" are therefore 
omitted from consideration. 



THE. IMPORTANCE OF FUEL SUPPLIES 

The necessity that any proposed cement location should be 
advantageously situated with regard to fuel supplies can hardly 
be stated too strongly. The importance of this feature of the 
location can be understood when it is recollected that the average 
plant will use in the neighborhood of £00 pounds of coal per 
barrel of cement produced. In other words, the fuel used in 
power plant and kilns will weigh half as much as the product, in 
a good plant, while this proportion may be greatly exceeded in 
a poor plant or in one operating on wet raw materials. 

It is obvious that since fuel is such an item in the total costs 
of cement manufacture, a proposed plant should be so located 
as to secure a regular supply of cheap and good fuel. The lack 
of such supplies is what operates so strongly to discourage cement 
manufacture along the Southern Atlantic Coast, for example, 
and in most portions of the West. 

The fuels used in Portland Cement kilns are powdered coal, 
oil, natural gas, and producer gas. The relative importance of 
these four fuels is well brought out by the following table, which 
is based upon the official statistics for 1907, the latest available. 

Oil is used by all of the cement plants in Arizona, California, 
Texas and Washington. Natural gas is used by all the operating 
Kansas plants, and by one plant elsewhere. A small output on 
producer gas at one plant is included in the natural-gas figures. 

54 



VALUATION OF CEMENT SECURITIES 

Powdered coal is, however, the principal fuel used, 79 plants, 
with a toal of 753 kilns, and producing 88.5 per cent of the total 
output, being equipped with powdered-coal burners. 



Fuels used m Portland Cement plants m 1907. 




Fuel Used 


Number 

of 
plants. 


Number 
of kilns. 


Output in 
1907 


Per- 
centage, 
of total 


Powered Coal 


79 
8 
6 

1 


753 

64 

58 

1 


Barrels. 

43,151,461 
2,229,004 

^3,404,925 




Oil 


88.5 




4.5 




7.0 






Total 


94 


876 


48,785,390 


100. 



Throughout the greater part of the Middle, Eastern and 
Southern United States kiln and power coals of at least fair 
quality can be obtained at costs of from $1.50 to $3.00 per ton 
at mill, the cost depending more on the location of the cement 
plant with respect to the coal fields than on the quality of the 
coal. If we assume that the plant uses 200 pounds of coal per 
barrel of cement, the fuel cost will therefore range between 15 
and 30 cents per barrel of product. It is obvious that with this 
allowance for fuel alone, the promoter who expects to make 
cement at a total cost of fifty cents or less per barrel has little 
margin left for labor, supplies, repairs, raw materials and other 
items of expense. 

As a matter of fact, most promoters recognize this difficulty, 
and in order to avoid it promise to run their plants on natural 
gas at a merely nominal fuel cost. In Kansas and Oklahoma, 
particularly, we find prospective plants allowing from two to 
ten cents per barrel for total fuel cost. That most of these low 
estimates are based on very erroneous data, even in dealing with 
a natural gas proposition, is evidenced by the following state- 
ment relative to fuel conditions in the principal Kansas cement 
district, prepared by an engineer well acquainted with the situa- 
tion there: 



55 



THE PORTLAND CEMENT INDUSTRY 

There is now no pool of gas developed in Allen County which 
will supply sufficient fuel to run a cement plant of 2500 barrels 
daily capacity, as was the case two or three years ago. 

The plants in operation derive their gas from several pools, 
scattered far apart, and it has been necessary to construct miles of 
pipe line in order to connect these pools with the plant. 

In order to conduct gas any distance, say twelve or fifteen 
miles, to a plant manufacturing two to three thousand barrels of 
cement daily, it would require a 12-in. pipe line; the cost of which, 
when right-of-way, damages, etc., is added to the cost of the pipe 
and laying same, is close to ten thousand dollars per mile. 

The Kansas Natural Gas Co. and other companies who handle 
gas commercially pay two cents, or even more, per thousand cubic 
feet, rather than lease the land and develop the gas themselves. 
Added to this the cost of pipe-line and other necessary equipment, 
it can readily be seen that when gas has to be carried even a small 
distance., four or five cents per thousand cubic feet is a low estimate 
of the cost. 

The Kansas Natural Gas Co. has never sold gas to manufac- 
turing institutions for less than 8 cents per thousand cubic feet, and 
would make no contract for definite time or definite quantity at 
this price, and have persistently refused to supply gas for manufac- 
turing purposes, claiming that they could only afford to produce 
and carry gas for such a price as they could command for domestic 
consumption. 

It requires from 3,500 to 4,000 cubic feet of gas for fuel pur- 
poses to produce a barrel of cement. Taking this into considera- 
tion, and at the figures above mentioned, it is very evident that 
anyone is guessing and not stating developed facts when they 
claim that cement plants can produce cement in Allen County for 
less than 14 cents per barrel for fuel. 

These figures are based on using long kilns, and good Corliss 
engines, with good boiler conditions. If gas engines were used to 
develop power, the figures might be reduced 500 cubic feet per 
barrel, but this would be liable to introduce other features, in the 
way of unsatisfactory operation, which would counterbalance the 
difference in gas cost. 

TRANSPORTATION FACILITIES 

As Portland Cement is a cheap and bulky product, special 
attention should be paid to the shipping facilities of the location 
at which it is proposed to erect a new cement plant. It must be 

56 



VALUATION OF CEMENT SECURITIES 

on transportation routes which give access to important markets, 
or else a large plant is not justified; and the rates to these mar- 
kets must be low enough to put the new plant on at least an 
equal basis with its nearest competitors. Further, the road or 
roads on which it is located must be of such a class as to be able 
to afford good car service at all times of the year. Some South- 
ern roads, for example, never have any cars to use for manu- 
factured products during the cotton-shipping season ; while some 
of the Western lines are almost as useless to the cement manu- 
facturer while the crops are moving. 

It is of course obvious that a cement plant located on only one 
transportation route is usually at a very serious disadvantage. 
Until railroad management becomes more purely altruistic than 
it is at present, there will be very material benefits to be derived 
in so locating the plant that it can ship over two or more roads. 
It is hardly necessary to enumerate the advantages thus obtained ; 
they consist, briefly, of competitive rates, satisfactory switching 
arrangements, and adequate car service. 

There is a certain moral advantage in having, in addition to 
the railroads, a navigable river or canal close at hand. Under 
ordinary circumstances it is of course unlikely that much cement 
will ever be shipped over either river or canal, but their presence 
is of use as an argument. In a few cases, it is true, as on the 
Lakes, the lower Mississippi, or the Hudson, the water trans- 
portation is really a serious factor in the situation. 

MARKETS AND COMPETITION 

In selecting a plant location, the technical advantages of the 
raw materials at some given site must not be permitted to have 
undue weight. The only good reason for building a cement 
plant anywhere is that it can be expected to sell at a profit the 
cement which it makes, and no possible advantages in the way of 
raw materials can make up for the lack of a good local market. 
Of course in a rapidly developing section some allowance may 
be made for possible future growth of this market, but at least 
some of the market must be there by the time the plant is built. 

57 



THE PORTLAND CEMENT INDUSTRY 

It is a question if this phase of the matter has not been overlooked 
in some of the recent Western promotions, located in areas densely 
populated by jack-rabbits. Plants built in Southern swamps, 
with the expressed intention of supplying the Panama Canal 
with cement, are in even worse case. 

In considering the earning possibilities of a prospective plant 
in a new district, without present local competition, the certainty 
of future competition must not be lost sight of. It is not pos- 
sible to prevent this, but it is usually possible to so select the site 
of the first plant that future competitors must operate at more 
or less of a disadvantage. It is in this respect that "promoted" 
plants are requently defective, for their site is selected not be- 
cause it is the best possible in that locality, but because the owner 
of that particular piece of land was willing to sell cheap, or to 
take stock in payment, or for some other reason of similar type. 

FINANCIAL PLANS 

If the new project appears, on examination, to be sound so 
far as all of its technical and commercial factors are concerned, 
there is still room for further inquiry and study on the part of 
the investor, for he must assure himself that the project has been 
financed along reasonable and even conservative lines. The plant 
itself may turn out to be, technically, a successful cement-maker ; 
but if the stock issues are out of all relation to actual construction 
cost, the returns on the investment will be small or entirely lack- 
ing, while if the company is loaded down with excessive fixed 
charges the entire investment may be lost. 

Both the methods and the results of the financing operations 
require careful scrutiny, and it is more than hazardous to ac- 
cept prospectus-statements regarding these features of the enter- 
prise at their face value. In the remaining chapters of this 
book the matters of promotion methods, bond issues, stock capi- 
talization and profits will be taken up separately, and dealt with 
in the detail which their importance justifies. 



58 



CHAPTER 
V 

THE METHODS AND PROFITS OF 
CEMENT PROMOTIONS 

IN the present chapter an attempt is made to discuss 
certain matters, acquaintance with which may 
save the investor or banker from considerable loss at a 
time when cement promotions are offered to him. Be- 
ginning with an estimate of the total amount of such 
promotions which are in view at present, an outline is 
given of the general methods pursued by the promoter 
of cement propositions, and of the source and amount 
of his profits. This is followed by a discussion of some 
of the more obvious errors usually contained in the pro- 
spectus of a "promoted" cement plant. 

THE IMPENDING FLOOD OF CEMENT SECURITIES 

Not so many years ago a leading financier described an acute 
crisis in the New York market as being due to the presence of 
an excess of "undigested securities," on which statement Mr. 
James J. Hill promptly commented that the bulk of the securi- 
ties in question were not only "undigested" but positively "indi- 
gestible." At that date neither of these terms could fairly have 
been applied to the relatively few cement securities which had 
then been offered to investors, for most of the early cement com- 
panies were financed privately, capitalized on a reasonable basis, 
and managed much like private businesses. It is only within 
the past few years that we have seen the cement industry made 
the basis for wholesale attempts at robbing the investing public 
through the agency of overcapitalized projects and misleading 
prospectuses. 

Until figures on the subject are assembled and compared, it is 
difficult to realize the extent to which foolish or fradulent pro- 

59 



THE PORTLAND CEMENT INDUSTRY 

motion has been carried in the cement industry. An estimate 
made recently showed that there were already in the United States 
113 cement plants, with a total capitalization of $141,587,000. 
These actual plants had a total annual capacity of over eighty- 
five and a half million barrels, while their production in 1907 
was less than forty-nine million barrels. In other words, the 
existing plants could not run profitably at much over half their 
rated capacity. 

As compared to the real condition of the industry at that 
date, the same estimate showed that 114 new plants were then in 
various stages of promotion. These projected plants had a total 
capitalization of $160,125,000 and a total annual capacity of 
62,000,000 barrels. 

The comparison of these two sets of figures brings out sharply 
two facts. The first is that with an annual output of not much 
over half the capacity of existing plants, preparations are being 
made to add sixty-two million barrels of cement per year to the 
capacity. The second fact of importance is that the proposed 
plants are capitalized much more heavily than the old ones. 





Capitalization 


Capacity 


Capital per barrel 


Existing plants . . 
Proposed plants. . 


$141,687,000 
160,125,000 


85,505,000 
62,000,000 


$1.65 
2.58 



As a matter of fact, it is probable that if this estimate were 
brought up to date, the contrast between the two sets of figures 
would be still more striking. It is probably well within limits to 
say that as soon as general market conditions seem to warrant 
it, the people of the United States will be asked to furnish be- 
tween 175 and 200 millions of dollars for the purpose of erecting 
new cement plants, and that much over half of that immense 
total will represent investments of very doubtful value. 

THE PROFITS OF CEMENT PROMOTERS ; THEIR 
SOURCE AND AMOUNTS 

In almost every fraudulent cement promotion, whatever its 
scale, the profits of the promoters are taken off at two stages. 

6o 



METHODS AND PROFITS OF CEMENT PROMOTIONS 

In the first stage a relatively small but quick profit is made on 
the land purchase necessary to supply the proposed company with 
raw materials, while in the second stage much larger profits are 
secured on the construction account. It may be of interest to 
follow a hypothetical case through its various stages and en- 
deavor to get some idea of the source and amount of the pro- 
moters' profits. 

We will assume that in passing through a prairie state the 
promoter has noticed a disused lime kiln, and the idea strikes him 
that here is a possible site for the Great Plains Cement Corpora- 
tion. A sample of the rock is sent to the nearest chemist, and if 
it shows less than 3 per cent magnesia no further tests are neces- 
sary at this stage of the proceedings. About two hundred acres 
of land are now optioned or bought. As the limestone outcrops 
all over this land it is worthless agriculturally, and costs per- 
haps ten dollars an acre. 

The next step is to arrange for the concurrent "experting" 
and advertising of the find. As to experting, it will be advisable 
to have several reports. The cheapest and, from the promoters' 
point of view, the safest method of handling this matter is along 
the following lines. 

The property should be examined for a report as to quantity 
of material by some local man. It is best to secure the State 
Geologist or State Chemist for this purpose when possible, as 
they have a number of advantages over others. First, their ser- 
vices are cheap or entirely free. Second, they have no embar- 
rassing knowledge concerning the cement business. Third, they 
do have local pride, and will be glad to have a large cement 
plant located in their state. Fourth, their official positions will 
add weight to their reports. 

The local expert will select several sets of satisfactory 
samples, and duplicate sets can be then sent to two absolutely 
reputable Eastern laboratories for analyses and burning tests. 
Three of the necessary reports will have then been obtained. It 
is usually desirable to secure a fourth, containing estimates as 
to costs, profits, etc. This can often be gotten very reasonably 
from the representative of a firm interested in selling cement 

.61 



THE PORTLAND CEMENT INDUSTRY 

machinery. The proposition is now fully equipped as to reports, 
and is almost ready for flotation. 

The expenses to date have been about as follows : 

200 acres of land at $10 $2000 

Expert's reports 1750 

Local advertising 250 

The last item will cover the insertion of items relating to the 
recent rapid growth of the cement industry elsewhere, to the 
fabulous profits of the Trust, to the advantages of making ce- 
ment locally, and to the investigations which are being carried on 
for "the largest Eastern cement company," for "directors of 
the Standard Oil Company" or for other probable investors. 
These will serve to create an educated public opinion, and will 
prepare the local banking interests to take up their part of the 
work. 

The Great Plains Cement Corporation can now be incorpor- 
ated, with a capitalization and bond issue arranged about as fol- 
lows: 

Bonds, 6 per cent $1,500,000 

Preferred stock, 7 per cent, cumulative 2,000,000 

Common stock 2,000,000 

Of the bonds, $200,000 are set aside to cover purchase money 
and other expenses connected with acquiring the valuable raw 
material properties of the corporation. Charters from most 
states will provide that the directors' opinion as to the value of 
these properties is conclusive, but it will be well to furnish pre- 
sumptive evidence in one of the expert reports. The following 
statements would serve this purpose well: 

Professor , State Geologist and President of the 

University, has estimated that our 200 acres of land contain above 
a depth of 100 feet fifty million tons of limestone and ten million 
tons of shale. The official reports of the United States Geological 
Survey show that the average value of the limestone quarried last 
year was $1.20 per ton. To be entirely conservative, however, we 
will assume that our vast limestone deposit is worth only ten cents 
per ton. On this basis the property contains limestone alone whose 
value is $5,000,000, to say nothing of the shale, much of, which 

62 



METHODS AND PROFITS OF CEMENT PROMOTIONS 

would make excellent pressed brick as well as cement. Under 
these circumstances our stockholders are to be congratulated on 
having secured this magnificent reserve of raw material at a cost 
of less than one-twentieth of its real value, as certified by Govern- 
ment experts.' 

A statement such as the above will add to the interest of the 
prospectus as well as tending to exonerate the directors from sus- 
picion of having overvalued the property. 

At this stage of the proceedings the promoter has expended 
$4,000, and has received in return bonds of the par value of 
$200,000, which the next steps will allow him to dispose of for 
perhaps $125,000 in cash. 

********** 

In order to secure all the possible profits, it is good policy to 
proceed now to organize the Altrurian Construction Company, 
with a full-paid capitalization of one thousand dollars, the stock 
being held by the promoter and his ground-floor associates. The 
Altrurian Construction Company will then agree to construct 
and deliver to the Great Plains Cement Corporation a modern 
well-built plant of a daily capacity of 2,000 barrels, and to ac- 
cept in payment therefor the entire stock and bond issue of the 
Great Plains Cement Corporation, excepting the $200,000 in 
bonds already paid for the land. 

The construction company is now ready to realize on the 
bond and stock issues of the cement company as they are paid 
over to it. If times are prosperous and the public is in a mood 
to snatch greedily at well-advertised offerings of this type, it 
will be usually possible to turn the bonds over to a syndicate of 
small local bankers, who will underwrite them at 80 and get a 
bonus of ten shares of preferred and ten shares of common with 
each thousand-dollar bond disposed of. The public will com- 
monly take the bonds at par, with a bonus of five shares of stock 
with each bond. After the bonds are out of the way, the pre- 
ferred stock can usually be marketed at or near par, with a half- 
share of common as a bonus. The net results of these operations 
will be summarized later. 



6 3 



THE PORTLAND CEMENT INDUSTRY 

The plant can either be built directly by the Altrurian Con- 
struction Company, or the contract can be sublet to a reliable 
firm already equipped for such work. In either case, a good 
2,000 barrel plant can be delivered to the Great Plains Cement 
Corporation, with sufficient working capital to keep it off the 
rocks for a year, at a net cost of not over $750,000 to the con- 
struction company. 

Assuming that the promoters do not desire to retain any in- 
terest in the project, and that all the issues are now in the hands 
of the public, the three parties to the transaction will stand as 
follows : 

1. The public have paid $2,500,000 for the entire bond issue, 
with which they received a bonus of 12,500 shares of common stock. 
They have also bought the entire preferred issue at par, and have 
received 20,000 shares of common as a bonus with it. The remain- 
ing common, as noted below, has been distributed otherwise, without 
direct cost to the public. The public have paid altogether 
$3,500,000 in cash. 

2. The promoter has paid out $754,000 for land, plant, and 
working capital. In return he has received $1,200,000 from the 
bonds, and $450,000 from the sale of his portion of the preferred 
at 90. It is assumed that he has given up the $250,000 excess of 
common stock, at the urgent request of the banking syndicate, for 
use in advertising and wash sales. 

3. The bulk of the profits have of course gone to the under- 
writers, but as the promoter will usually have at least a minor 
interest in the underwriting he can not well complain of this. 



Industrially the net result is that the country is presented 
with a new cement plant heavily overcapitalized both as to stock 
and bonds. The way in which this overissue of securities has 
come about is summarized below: 



Actual cost of land and plant, and working capital $754,000 

Promoters' profits on purchase and construction 896,000 

Underwriting profits and marketing expenses 1,650,000 

Total cost to public $3,300,000 

Excess stock as bonuses, etc 2,200,000 

Total face value stock and bond issue $5,500,000 

64 



METHODS AND PROFITS OF CEMENT PROMOTIONS 

The above example of cement plant promotion might perhaps 
be regarded as exaggerated, but unfortunately almost every ele- 
ment in it can be matched on comparison with promotions actually 
on foot to-day, or which have been placed before the public with- 
in the past three years. 

THE MISSTATEMENTS OF CEMENT PROSPECTUSES 

It is obvious that such a proposition as outlined on preced- 
ing pages could not be successfully floated if the prospective 
purchasers of the bonds and stock had the faintest idea of the 
truth regarding conditions in the cement industry. Neverthe- 
less, flotations of equally bad character have been successfully 
accomplished in the immediate past, and similar schemes will un- 
doubtedly again attract attention when business revives suffi- 
ciently to make them possible. Their successful flotation is ac- 
complished by trading on the profound ignorance of bankers 
and the public regarding cement conditions, and by increasing 
this ignorance through the medium of most attractive prospect- 
uses and advertisements. 

It is of course difficult to name in advance all of the errors 
and misstatements which are likely to be found in a cement 
prospectus, but certain types of misstatement occur very uni- 
formly throughout this class of literature, and these persistent 
types of error may conveniently be grouped as follows : 

v A. Misstatements as to the GENERAL CONDITIONS of the 
industry ; as to the demand being greatly in excess of the supply ; as 
to the effect of individual engineering works — i.e., the Panama 
Canal — on the cement market. 

B. Excessive valuations placed on RAW MATERIAL SUP- 
PLIES. 

C. Misstatements as to average SELLING PRICES to be 
expected. 

D. Low estimates as to MANUFACTURING COSTS. 

E. Exaggerated estimates of PROFITS to be realized. 

In the following pages each of these types of misstatement 
will be taken up in turn; examples of each will be given from 

65 



THE PORTLAND CEMENT INDUSTRY 

actual prospectuses ; and the facts in the case will be briefly dis- 
cussed. 

A. MISSTATEMENTS AS TO GENERAL CONDITIONS 

The average prospectus will on examination be found to con- 
tain a series of misstatements relative to the general conditions of 
the cement industry. Starting with statements as to the rapid 
growth of the industry in the period 1890-1906, inclusive, which 
was astonishing enough, the prospectus-writer goes on to say 
that its future growth will be more rapid and equally steady. 
The probabilities in this line have been discussed at length in an 
earlier chapter of this book, where the conclusion was reached 
that the period of steady and uninterrupted growth reached its 
climax during the early part of the year 1907, and that here- 
after we may expect the industry to follow closely the other 
basic manufacturing industries in their close dependence on gen- 
eral business conditions. 

Much stress is also laid, in a number of prospectuses, on the 
market which will be afforded by single engineering works — the 
favorite example being, of course, the Panama Canal. 

The following extracts from recent promotion literature are 
fair samples of the sort of misrepresentations that can be ex- 
pected along these lines : 

Not a failure ever recorded in a modern Portland Cement indus- 
try; not a Portland Cement plant that is not away behind in its 
orders; not a Portland Cement security that is not paying good 
dividends; not a year but the uses of Portland Cement are on the 
increase; not a possibility of a failure in our project where the 
supply of natural cement stone is inexhaustible and where orders 
are waiting for full capacity of plant. 



It is an important fact that holders of cement stock are a 
satisfied lot of investors, because: 

1. They are receiving regular and generous, and in some in- 
stances enormous returns on their investment. 

2. They are owners in a manufacturing business that is over- 
whelmed with orders for its output. 

3. They can see a splendid surplus growing, which pays back 
their original investment, leaving big dividends on their common 
stock. 

66 



METHODS AND PROFITS OF CEMENT PROMOTIONS 

4. There has never been a failure in a Portland Cement factory. 

5. The assets of the company are always in sight, where every 
stockholder can see and know. 

6. The raw material in the business which produces the profits 
is not subject to manipulation whereby it loses its value. 

7. There is no possibility of the supply of rock giving out on 
our property as quantities can be estimated without a doubt and 
an absolute measurement made where deposits are entirely on the 
surface. 



According to commercial journals, the supply of Portland 
Cement at this writing is short of the demands more than 2,500,000 
barrels. 



We are better situated than any other concern in the United 
States for cheap transportation to Panama. The building of this 
canal will consume daily more than one-third of the entire output 
of Portland Cement in the United States to-day. This will raise 
the price of Portland Cement. 

B. EXCESSIVE VALUATIONS OF RAW MATERIAL SUPPLIES 

A second interesting series of misrepresentations group them- 
selves around the question of raw material supplies. In an earlier 
chapter it has been noted that good cement materials are so com- 
mon, and so widely distributed throughout the United States, as 
to be, of themselves, almost valueless. This view of the case is 
not to the promoter's liking, however, and in many prospectuses 
we find misstatements tending to give the idea that the particu- 
lar company under promotion has a monopolistic control over 
desirable raw material supplies. The following extracts will 
serve to exemplify this type of misrepresentation : 

The material used in making Portland Cement is natural Port- 
land Cement rock, which is found only in the state of Pennsylvania 
and Southern Alabama. The latter, however, on our property, 
is a soft rock, which is easily and cheaply manipulated, while 
that of Pennsylvania is a very hard substance and very expensive to 
reduce, besides being treacherous in its analysis. Mills in other 
states than the above must use a mixture of marl, limestone, clay 
and gypsum. 

67 



THE PORTLAND CEMENT INDUSTRY 

There are only four locations in the world where are found 
natural rocks which when calcined at a very high heat, will in 
themselves produce clinker, making a high grade of Portland Ce- 
ment, namely: In the Lehigh district in Pennsylvania, at Bou- 
logne in France, and in Belgium, and at no place in such enormous 
quantities as on this company's property. The rock has been 
tested to a depth of 300 feet and is uniform in its character 
throughout. Estimating the rock at only one ton to the cubic yard 
throughout, we get the enormous total of 200,000,000 tons, or count- 
ing five barrels per ton, we have 1,000,000,000 barrels; enough for 
nearly all time to come. 



On this company's land the three items of raw material essen- 
tial in the production of Portland Cement — shale, limestone and 
coal — are found in inexhaustible quantities and of superior quality. 
Expert opinion has estimated that the value of the coal on the 
property, on a basis of ten cents a ton in the ground, would return 
to the company over $3,000,000; and the shale and limestone, esti- 
mating each item at two cents per ton in the quarries, the values of 
each would be $2,000,000 — a total minimum valuation of raw 
material on the company's property of $7,000,000. 



C. MISSTATEMENTS AS TO SELLING PRICES 

The promoter, as shown by the following prospectus extract, 
usually fixes the selling price of his cement at between $1.50 and 
$2.00 per barrel in bulk at the mill, regardless of the fact that 
the day of such prices passed away a decade ago. The tables 
of average selling prices published in Chapter II of this book 
would alone serve to disprove his statements in this regard : 

At present, Portland Cement is selling in the South from $2.25 
to $2.65 per barrel. We have, therefore, kept within safe limits 
on that score (i.e., in estimating the probable average selling price 
at $1.50 f.o.b. mill). 

D. LOW ESTIMATES OF MANUFACTURING COSTS 

The estimates of manufacturing and general operating costs 
found in cement prospectuses are remarkable, less for their uni- 
formity than for their extreme lowness. One or two, out of a 
large series in the writer's possession, figure on a total cost of 

68 



METHODS AND PROFITS OF CEMENT PROMOTIONS 

80 cents per barrel or thereabouts ; but at least four-fifths of the 
prospectus-writers give an estimate for total costs of between 
45 and 60 cents per barrel. A few interesting examples carry 
their cost estimates as low as 30 or 35 cents per barrel. 

In considering the figures thus given, it must be remembered 
that they are not supposed to be mill-costs only, but to in- 
clude overhead charges, selling costs, etc. To be at all safe, they 
should also include heavy allowances, not only for ordinary de- 
preciation, but for changes made necessary by the continual 
progress of the industry. When this is understood, it is obvious 
that not one promoted plant out of twenty can ever hope to show 
actual costs as low as those promised by the prospectus-writer. 
In the case of the plants which expect to make thirty or thirty- 
five cent cement, the proposition is not even open to serious con- 
sideration. 



E. EXAGGERATED ESTIMATES OF PROFITS 

By underestimating manufacturing costs, and overestimating 
selling prices of the product, the promoter is able to promise 
profits of very unusual degree to the investor in the securities of 
his new cement company. In the final chapter of this book some 
facts are given relative to the experience of existing companies, 
which may serve to compare with the hopeful estimates of the 
promoter, of which the following affords a fair sample: 

After a careful investigation of the cost of making cement at 
the various factories now in operation, we can manufacture, without 
any doubt, at the following prices: 

Material delivered at mill, 
Coal at $2.25 per ton, 
Superintendent and office staff, 
Labor operating plant 
Supplies, 

Renewals, repairs and sacks, 
Insurance and taxes, 
Contingencies, 



.04 


per bbl. 


.24 


<< 


.03 


<< 


.14 


<( 


.02 


" 


.10 


<< 


.02 


<< 


.02 


<< 


.60 


per bbl. 



69 



THE PORTLAND CEMENT INDUSTRY 

These figures look out of reason, but the cost in every item is 
figured at 10 per cent, more than the highest estimate, and we 
can cut the profits half in two and then still have one of the best 
kind of investments. 

3000 bbls. per day, 1,095,000 bbls. per yr. at $1.50 $1,642,500 
Cost to manufacture 1,095,000 bbls. at 60 cents 657,000 



Profit of company per year $ 985,500 

The entire plant will cost, ready for operation, not over $750,000. 



70 



CHAPTER 
VI 

THE CAPITALIZATION OF CEMENT 
COMPANIES 

TO the investor in cement securities the question of 
proper capitalization is one of paramount import- 
ance. Assuming that the company is so located and man- 
aged that it can make and market its product at a reason- 
able profit per barrel, the returns to the stockholder will 
depend solely upon whether or not the company has been 
capitalized at a proper figure. If, as is too often the 
case with recent promotions, its capitalization is exces- 
sive, it will be impossible to pay regular dividends at 
a rate commensurate with the risks ordinarily involved 
in an industrial enterprise. 

THE OBJECTIONS TO OVERCAPITALIZATION 

It is often said that it is a matter of perfect indifference, 
both to the public and to the stockholder, if a corporation — 
either industrial or railroad — is overcapitalized, since the excess 
of stock over true value will be promptly discounted by a fall 
in the price of the stock. Though this statement is true enough, 
it overlooks the fact that there are several good reasons for avoid- 
ing overcapitalization, particularly of an industrial. 

Fraud agamst the original 'purchaser. The principal objec- 
tion is that the usual purpose of overcapitalization is to defraud 
the original purchaser of the stock. When stock is being sold 
to the general public through agents, as is the case in most of the 
cement promotions now under consideration, the promoter or his 
agent is dealing with individuals who know nothing about the 
industry in which they are asked to "invest," and who must in 
consequence rely entirely upon the statements of the prospectus. 
In order to secure stock subscriptions it is obviously necessary to 

7i 



THE PORTLAND CEMENT INDUSTRY 

promise regular and large dividends; and if the company is 
heavily overcapitalized these promises can not be kept. Even 
in a reasonably capitalized and honestly managed company the 
stockholder is likely to have some anxious moments, but in a 
fraudulently or foolishly promoted company of the type above 
noted the purchaser of stock does not even have a fair gambling 
chance. He is buying into a concern which cannot possibly pay 
dividends except in unusually prosperous years, and he is in line 
for depreciation of capital as well as loss of interest. 

Effect on company management. Stability of dividend re- 
turn is as much to be desired by the company management as by 
the stockholder, though that fact is frequently overlooked. On 
this account overcapitalization exerts a powerfully injurious in- 
fluence on the history of the company which is so burdened. 

If dividends are low or lacking, the stock of the company will 
depreciate in price to a point fixed by its value for purposes of 
control, and not for investment. If the dividend rate, even 
though fair on the average, be too irregular, the stock will also 
lose its investment value and become purely speculative. In either 
case there will be a large floating supply of stock available, at 
low or greatly fluctuating prices, and the temptation to manage 
the company as a speculative machine will be almost irresistible. 
These conditions have been well exemplified, during the past de- 
cade, by the experience of several of the larger steel companies, 
which, though technically in an excellent position, have had a 
most painful financial history owing to the manner in which they 
have been handled for stock-market purposes. In all of these 
cases, the primary cause of the difficulties in which the companies 
became involved was excessive capitalization — either created at 
the outset or caused by later unjustifiable stock issues. 

There is another way in which overcapitalization has a di- 
rectly bad effect from the management's point of view. Most of 
our American industrial companies have shown an unhappy fa- 
cility for periodically running short of working capital. When 
a company reaches this point, its capitalization and past divi- 
dend record become matters of the first importance. It is true 
that there are two points in our financial cycles — at the height of 

72 



CAPITALIZATION OF CEMENT COMPANIES 

a boom and at the bottom of a depression — at which the ordi- 
nary banker will not make much distinction between good and bad 
companies. But at normal periods in the money market, when 
collateral or other securhvy is scrutinized with reasonable care, 
there will be a very marked difference in the ease of securing 
funds between a reasonably capitalized and an excessively capi- 
talized company. 

THE BASIS FOR REASONABLE CAPITALIZATION 

Before the question of overcapitalization in proposed cement 
plants can be satisfactorily discussed, it is necessary to arrive at 
some basis for determining what may be considered to be a rea- 
sonable capitalization for a plant of some given size, operating 
under average conditions of economy. 

Limiting factors. There are two factors which operate to 
limit, in the two opposite directions, the amount for which a 
cement plant can and should be capitalized. On the one hand, 
it is obvious that the capitalization must at least equal the 
amount of money actually spent on the construction of the plant, 
plus the working capital required. This condition fixes the mini- 
mum possible capitalization, a matter with which promoters are 
rarely concerned. The second consideration, which fixes the 
maximum satisfactory capitalization, is that the plant should be 
capable of paying a reasonable industrial rate of dividend, con- 
tinuously over a long series of years, on the total capitalization. 
It will be seen later that the minimum and maximum capitaliza- 
tions thus arrived at are, contrary to the popular impression, 
not very far apart for average plants in the Eastern and Middle 
Western states. In other words, a plant can not be safely capi- 
talized for an amount much in excess of its actual cost. 

Minimum possible capitalization. In the case of a new plant, 
to be financed solely by stock issues, it is obvious that it can not 
well be capitalized for less than the actual cost of land, plant 
and working capital. It is possible to fix this necessary mini- 
mum with a fair degree of accuracy. 

Under the most favorable conditions as to land, labor and 

73 



THE PORTLAND CEMENT INDUSTRY 

materials, it is impossible to erect a cement plant and supply it 
with working capital for much under one dollar of capital per 
barrel of actual annual output. In most parts of the country 
the ratio will run considerably higher, while in the Far West 
it may reach two dollars or even more per barrel of output. 

On examining the table of actual capitalizations of existing 
companies on page 14, it will be seen that a number of 
the Lehigh district companies are capitalized at less than one 
dollar per barrel of actual output. It must be remembered, 
however, that most of these companies date back to periods 
when everything involved in plant construction was cheaper than 
at present, that many of them have financed new construction 
from earnings, and that there are occasional bond issues not 
considered in that table. 

Maximum safe capitalization. The maximum capitalization 
which can be considered satisfactory is fixed by the consideration 
that it should not be so high as to endanger a fair dividend 
return. If we accept 7 per cent as a reasonable rate for an in- 
dustrial, the plant should be so capitalized that it is possible 
to pay at this rate, on the whole capitalization, continuously 
over a long series of years. 

If this rate of return be accepted as a fair expectation, the 
results given in the little table below are of course obvious. 

Capitalization of company, Necessary net profits per bbl. 

per bbl. actual output. to maintain dividend rate. 

$1.00 7 cents 

2.00 14 cents 

3.00 21 cents 

4.00 28 cents 

5.00 35 cents 

From what is known of present conditions in the cement 
business, and with the expectation that in all parts of the coun- 
try its margin of profit per barrel will necessarily, though per- 
haps slowly, diminish in the future, it would seem highly inad- 
visable to capitalize a plant anywhere in this country for more 
than four dollars per barrel of actual output, even if at present 
the plant in question has a remunerative and well-protected local 

74 



CAPITALIZATION OF CEMENT COMPANIES 

market. In parts of the United States where the cement indus- 
try is already on a highly competitive basis, any capitalization 
over two dollars per barrel of output will result in handicapping 
the possible future growth of the plant. No new company, 
with all of its experience and growth still before it, can hope 
to become any serious factor in the American cement industry 
if it starts out with a narrow margin of safety, for the industry 
has now reached a stage where wide fluctuations in annual 
earnings may be looked upon as normal, and not as exceptional. 

ACTUAL CAPITALIZATION OF EXISTING 
COMPANIES 

Passing from more or less theoretical discussion of possible 
bases of capitalization, it is of interest to examine the experience 
of existing companies in regard to this point. During twenty 
years we have had a slow but steady sifting process at work, 
which has distinguished always between the weak and the strong 
companies. Periodically there come times when weak plants are 
either eliminated entirely, or experience temporary receiverships, 
or have their growth checked. The stronger, better managed 
or better located companies, on the other hand, pass through 
these periods of stress and emerge stronger, more important and 
larger than before. Of course all the differences between the 
sound and unsound companies cannot be charged against the 
manner in which they were originally financed, but the question 
of capitalization is of such importance in this connection that 
it merits careful study. 

In the table below a selected series of American cement plants 
have been arranged by groups. Following each group are 
data on its total capitalization, its total nominal yearly capacity, 
and its actual output during 1907. The total capitalization 
given, in each case, omits bond issues and the stock issues of 
subsidiary companies, as these data could not be readily ob- 
tained. The error so introduced, however, will affect all the 
groups, and as the table is designed largely for purposes of 
comparison, may be dismissed with this note. In the last two 

75 



THE PORTLAND CEMENT INDUSTRY 

columns of the table are given, for each group, its capitaliza- 
tion per barrel of nominal annual capacity, and its capitaliza- 
tion per barrel of actual output during 1907. It will be seen 
that these figures, when the different groups are compared, are 
both striking and varied. The lesson to be drawn from the 
variations is noted below. 





Capitaliza- 
tion 


Nominal 
capacity 
per year 


Output, 
1907 


Capital per barrel of 




Nominal 
capacity 


Actual 
output 






Barrels 


Barrels 






Group 1 

Group 2 

Group 3 


$21,200,000 

2,050,000 

15,217,000 


29,750,000 

2,550,000 

17,465,000 


22,890,310 
2,050,284 
7,983,676 


$0.71 
0.80 
0.87 


$0.92 
1.00 
1.91 


Group 4 

Group 5 

Group 6 . . • ... 


21,750,000 
19,300,000 
25,250,000 


7,600,000 
5,400,000 
6,980,000 


2,775,247 
2,581,744 
2,792,000? 


2.86 
3.57 
3.62 


7.83 
7.47 
9.50 


Group 7 


14,200,000 


2,750,000 


1,289,839 


5.16 


11.01 



The companies included in the above table represent about 
three-quarters of the total American production of Portland 
cement, so that the results obtained from examination of the 
table may be considered to have a broad comparative value. 
The grouping adopted is as follows: 

Group 1 includes seven of the largest cement companies opera- 
ting in the Lehigh district of Pennsylvania-New Jersey. The 
companies here included are all large, the smallest producer making 
in the neighborhood of one million barrels per year, while the 
group together makes almost half of the total American output of 
cement. The capitalization of these companies averages only 71 
cents per barrel of nominal capacity, and 92 cents per barrel of 
actual output. In other words, a profit of only 5 cents per barrel 
of cement would be sufficient to enable the payment of 6 per cent 
dividends on the stock of his group. 

Group 2 is of interest as showing that common-sense and con- 
servative capitalization are not necessarily confined to the larger 
companies. This group consists of four relatively small companies 

7 6 



CAPITALIZATION OF CEMENT COMPANIES 

operating in the Lehigh district — companies whose plants produce 
from one-quarter to three-quarters of a million barrels annually. 
The capitalization per barrel is, it will be noted, only slightly in 
excess of that of Group 1. 

Group 3 includes fifteen companies operating in various parts of 
the United States outside of the Lehigh district, but mostly in the 
East and Middle West. These particular companies have been 
selected as being, so far as known, in absolutely sound technical 
and financial condition. The group may therefore be assumed to 
be representative of the better class of American cement companies, 
exclusive of those in the Lehigh district. The average capitaliza- 
tion of the group is 87 cents per barrel of nominal capacity, and 
$1.91 per barrel of actual output. 

The companies included in the three groups so far considered 
agree in being commercially successful, thoroughly sound, and 
conservatively capitalized. With Group 4, however, we reach 
companies of an entirely different class, affording an interesting 
contrast to those of the three first groups. 

Group 4 includes seven plants, all except two of which are 
located west of the Mississippi, and all of which are known to have 
been built for the sake of the promotion profits, and not for the 
sake of creating; sound industrial enterprises. It will be seen that 
their capitalization amounts to $2.86 per barrel of nominal capacity, 
and to $7.83 per barrel of actual output during 1907. It will also 
be noted that their actual output was only 36 per cent, of their 
rated capacity, a condition which often occurs in "promoters" 
plants. To pay 7 per cent, dividends on their stock issues, the 
plants of this group would have to show net earnings of 55 cents 
per barrel of actual output. 

Group 5 includes five plants, some in the Lehigh district and 
some elsewhere, which owe their present condition not to original 
overcapitalization but to later injudicious stock issues. They were 
able to produce during 1907 almost 50 per cent, of their rated 
capacity, but their basis of capitalization is so high as to render 
them unsafe except in boom times. 

Group 6 includes eight recently advertised promotions — three in 
the Lehigh district and five elsewhere. Assuming that they can 
turn out 40 per cent, of their nominal capacity, which is probably 
over the mark, these plants will have to earn net profits of GG 1 ^ 
cents per barrel, in order to pay the assumed dividend rate of 7 per 
cent. The possibility of doing this is hardly worth considering, in 

77 



THE PORTLAND CEMENT INDUSTRY 

spite of which fact most of the promoters promise not 7 per cent., 
but 20 per cent, or 25 per cent, dividends. 

Group 7 includes nine cement companies which are now, or have 
been recently, in the receiver's hands. The cause of failure seems 
to be obvious when attention is directed to the basis on which this 
group of plants was capitalized. Referred to their nominal or 
rated capacity, these plants were capitalized at $5.16 per barrel, 
which proved to be equivalent to $11.01 per barrel of actual output. 
There is, in this case, no need to point a moral. 



78 



CHAPTER 
VII 

CEMENT BOND ISSUES 

BOND issues make up a very small percentage of the 
total securities outstanding against existing cement 
plants, by far the greater portion of the total capital 
required for the construction and operation of these 
plants having been raised through stock issues alone. 
It seems, however, as if the series of companies now in 
various stages of promotion expect to place more de- 
pendence on bonds than did the older companies, and it 
is very probable that the bonds issued against such pro- 
spective plants will amount, in the next few years, to 
a heavy total. As pointed out later, the security back 
of bonds issued against unbuilt plants is usually very 
different, both in kind and in amount, from that which 
is back of the bonds of seasoned companies. 

THE GENERAL STATUS OF INDUSTRIAL BONDS 

The average small investor, accustomed to the use of the 
word "bond" to designate our Government securities, has shown 
a tendency to consider that any security called a bond has of 
necessity certain elements of soundness and respectability not 
inherent in other securities called stocks. There is, of course, 
a certain reasonable basis for this belief. When the two terms 
are properly used, the stockholder is merely a partner, while 
the bondholder is a creditor; and so long as the security back 
of the bond issue is of proper character and amount, there is 
little possibility of loss on a bond investment as compared with 
that on a purchase of stock. In dealing with an industrial bond 
it is peculiarly necessary to see that this security is present. 

Under ordinary conditions, it may be said that a sound bond 
issue should fulfil two conditions : 

79 



THE PORTLAND CEMENT INDUSTRY 

1. Security of principal. The bond issue should be so small, 
relative to the value of the property it covers, that even in a fore- 
closure sale the property will bring enough to pay off the bonds 
in full. 

2. Security of income. The earning power of the property 
against which the bonds are issued should be sufficient to cover, 
even during a series of the poorest business years, the annual 
charges on the bonds. 

A third condition it is highly desirable, though not neces- 
sary, that the bonds should fulfil : 

3. Increase in security. The average surplus earning power 
of the property should be sufficient to permit either the creation of 
a bond-retirement fund from earnings, or the creation of an addi- 
tional equity through expenditures on the enlargement and improve- 
ment of the property. 

All of the above conditions are fulfilled by the average first 
mortgage issue of the better American railroads. They are 
often fulfilled by issues of bonds against old-established and 
prosperous industrial concerns. They can rarely, if ever, be 
fulfilled by bonds issued against industrial plants before the 
completion of such plants. 

BOND ISSUES AGAINST ESTABLISHED PLANTS 

Occasionally bonds are offered which are a lien against the 
plants of old and well-established cement companies. When this 
is done, it is usually for one of two purposes. Either the pro- 
ceeds of the bond issue are to be spent for new construction, 
or the bonds are issued in order to capitalize expenditures 
already made for extensions and previously paid for out of sur- 
plus. 

Bonds issued under such conditions must, for satisfactory 
flotation, be accompanied by reasonably full statements as to 
the present financial condition and past earning capacity of the 
company. If these statements show that, even during the poor- 
est years, the minimum net earnings of the company would have 
been sufficient to pay the annual charges on the bond issue, the 

8o 



CEMENT BOND ISSUES 

question of security of income may be regarded as settled. As 
to security of principal, data should be obtained showing the 
value, above existing liens, of the present properties of the com- 
pany. Satisfactory arrangements to retire the bonds at or be- 
fore maturity through sinking fund operations must also be 
described in detail. 

Assuming that the security offered is ample, the question re- 
maining is as to the price at which cement bonds of high grade 
would become reasonably profitable investments. To judge from 
the more extended data which we have on iron and steel securi- 
ties, even first-class cement bonds during years of depression 
might be expected to sell on a 6J to 7 per cent income basis, 
while in years of high security prices they may sell on a 5 or 
4f per cent basis. 

BOND ISSUES AGAINST UNBUILT PLANTS ' 

Bond issues against unbuilt plants make up a relatively small 
proportion of the flood of new cement securities with which the 
country has been deluged during the past few years. There 
are indications that this type of promotion is becoming more 
favorably thought of, and with the advent of prosperous times 
we may fairly expect to see bond issues on proposed plants ap- 
pear in quantity. 

It may be said to the credit of such issues that they are 
rarely turned out in connection with absolutely fraudulent 
schemes. They offer a decided advantage to the honest but im- 
pecunious promoter, in that by a bond issue he may borrow suf- 
ficient money to more than pay for the construction of his plant, 
while he still owns and controls the company through its stock 
issue. That such a condition is possible is due entirely to the 
magic which inheres in the word "bond." If the securities so 
offered were called stock, or even preferred stock, they would 
be very difficult to float at par, but as bonds they find a ready 
market, even though it is demonstrable that such bonds are little 
more secure than the stock issues which they precede. 

81 



THE PORTLAND CEMENT INDUSTRY 



EXAMPLES OF TYPICAL CEMENT BOND OFFERINGS 

The characteristics of bonds issued against uncompleted 
industrial plants are best brought out by a study of actual in- 
stances. For this purpose two fair examples have been selected 
from among the offerings of the past year. These particu- 
lar examples have been picked out because they contain all the 
elements necessary for use as illustrating the general features 
of such bonds. The propositions with which they are connected 
are neither strikingly bad, nor exceptionally good, as compared 
with the average run of recent cement promotions, so that these 
two bond issues can be accepted as being fairly representative 
of the whole group of similar issues. 

Example 1. Offering of an issue of $1,500,000 bonds of an 
unbuilt cement plant. Bonds are 6 per cent, twenty year, first 
mortgage. Capital stock of company is $2,500,000. "A first offer- 
ing of the bonds of this company to the amount of $750,000 is 
made to investors at par with absolute assurance of their conserva- 
tive, safe and attractive character. They are based upon the most 
reliable and substantial security, the value of which is four or five 
times as great as the par value of the entire bond issue as demon- 
strated by the development and opinions of experts and engineers 
as to the vast resources of coal, shale and limestone on the land 
owned by the company." Proceeds to be used in construction of a 
plant with capacity of 2,000 barrels per day. 

The "most reliable and substantial security" above noted 
consists of the following items: 

1. The bonds are a first mortgage on 4,420 acres of land. "Ex- 
pert opinion has estimated that the value of the coal on the property, 
on a basis of 10 cents per ton in the ground, would return to the 
company over $8,000,000; and the shale and limestone, estimating 
each item at 2 cents per ton in the quarries, the values of each 
would be $2,000,000, a total minimum valuation of raw material 
on the company's property of $7,000,000/' 

2. The bonds will be a first mortgage on a 2,000-barrel plant 
when built, which plant is to be built on the proceeds of the bond 
sale. The construction of such a plant, it may be noted, would 
cost perhaps $600,000. The reliable experts of the company figure 
that it can produce cement at "a cost not exceeding $1.75 per ton 

82 



CEMENT BOND ISSUES 

of cement, readily salable at $6 per ton or more at the mill." These 
figures may be assumed to correspond approximately to 35 cents 
and $1.20 per barrel, respectively, and such a margin of profit is 
certainly interesting — if true. On this basis it is a simple matter 
to prove that a 400-ton plant, operating 865 days in the year, would 
make a net profit of $620,500 annually, which is obviously ample to 
provide not only for the $90,000 of fixed charges on the bonds, but 
for heavy dividends on the stock and for ample retirement funds. 
Example 2. Offering of an issue of $2,000,000 bonds of an 
unbuilt cement plant. Bonds are 6 per cent, twenty year, first 
mortgage. Capital stock of company is $5,000,000. Bonds offered 
at par, with stock bonus to secure funds for construction of a 5,000- 
barrel plant, with guarantee of $100,000 working capital. Present 
security back of bonds is the ownership of 700 acres of land. The 
ultimate security will be a mortgage on a plant costing possibly 
$1,500,000. A plant of this size, operating 360 days in the year, 
and making a net profit of 65 cents per barrel, will, as pointed out 
in the prospectus, show total net profits of $1,170,000 annually. 
This is of course ample to cover the charges on the bonds, which 
amount to only $120,000 per annum. 



SECURITY OFFERED FOR BOND ISSUES 

The two preceding examples have been selected from among 
recent bond offerings, to illustrate more fully the type and 
amount of security that is offered for bonds of this class. These 
issues have been extensively advertised, and are fairly typical 
of their class in all respects. On examination and comparison 
it will be seen that they offer security of precisely the same 
present grade, and differ only in the enthusiasm with which they 
set forth the possible future earning power of the plants when 
completed. In each case the bonds as now issued are secured 
by a first mortgage on certain real property at present unim- 
proved but underlaid by ample deposits of cement materials. 
In each case the purpose of the bond flotation is to secure funds 
for the erection of a large modern cement plant on the com- 
pany's property. In each case the amount of funds to be raised 
by the bond issue is considerably in excess of the cost of con- 
structing such a plant. In each case, therefore, the ultimate 
security back of the bonds will represent less than 100 per cent 

83 . 



THE PORTLAND CEMENT INDUSTRY 

of the face value of the bonds themselves, to say nothing of the 
liberal stock issues. 

When these facts are considered, it is obvious that such bond 
issues are very inadequately secured. In case of default and 
foreclosure, the plant could not be expected to bring under 
forced sale anywhere near its actual cost of construction, and 
therefore the bondholders cannot expect to get back, in such a 
contingency, as much as they paid for their bonds. So long 
as the plant is in profitable operation, holders of such bonds are 
secured, but a receivership means a heavy scaling down in the 
bonds. A banker accustomed to dealing in investment securities 
will realize that these characteristics — safety in time of pros- 
perity, but heavy loss of value on receivership or reorganization 
— are characteristic, not of the usual first mortgage bond to 
which he is accustomed, but of junior issues, debentures and the 
stock issues. He should be prepared, therefore, to scrutinize 
even more carefully than usual the provisions of the deed of 
trust, and the evidence offered that the bond issue placed 
before him will always be secured by earnings, since it is not 
fully secured by property value. Regarded purely as income 
bonds or as preferred stock, such bond issues may have some 
value, but they must obviously be differentiated sharply from 
such well-secured issues as the average railroad first mortgage. 

EARNING POWER BACK OF THE SECURITY 

Since the issues in question are really to be regarded as de- 
bentures, the principal question which the banker or bond- 
buyer must settle is whether the proposed plants will every year 
over a long series of years show sufficient net profits to accom- 
plish the following objects: 

1. To satisfy the annual interest charges on the bonds. 

2. To set aside an ample allowance for replacement of raw 
materials used. 

3. To make heavy allowances for depreciation of plant. 

4. To provide for improvement and growth of plant, so that in 
time the property security for the bond issue will increase. 

5. To provide a sinking fund for the retirement of bonds. 

s 4 



CEMENT BOND ISSUES 

In determining the adequacy of the probable earning power 
of the plant, certain data are readily available. Annual Gov- 
ernment reports, which have now been issued for a long series 
of years, furnish detailed figures on the production and average 
selling value of cement and of fuels, in each state of the Union. 
These figures alone will serve to controvert many of the highly 
exaggerated estimates presented in prospectuses as to the possible 
profits in the cement business. For a proposed plant in any 
given district the question of probable profits and growth will de- 
mand consideration of a large number of factors — labor condi- 
tions, character of raw materials available, grade and cost of 
fuel, economy of plant construction, location and status of com- 
petitive plants, freight rates, present size and possible growth 
of local market, average previous selling prices in both local 
and competitive markets. When these questions have been settled 
satisfactorily, there still remains a more important personal prob- 
lem — whether or not the proceeds of the bond issues will be 
entrusted to men who will use them honestly, economically and 
intelligently in the construction and operation of the proposed 
plant. 



85 



CHAPTER 
VIII 

THE PROFITS AND LOSSES OF CEMENT 
MANUFACTURE 

BEFORE closing this discussion of the financial side 
of the cement industry, it is necessary to take up 
more directly the question of profits, in order that some 
idea may be obtained as to what may reasonably be ex- 
pected from an investment of this nature. It would, of 
course, be possible to work out a purely theoretical expo- 
sition of this phase of the subject, giving estimated costs 
of cement manufacture under certain fixed conditions. 
But the conditions governing costs are so numerous and 
variable, that this method of procedure would seem to 
promise results of little general utility. In place of such 
general estimates, the present chapter, therefore, con- 
tains summaries of the actual results obtained in the 
operations of several large and well-known Portland 
Cement companies. Examination and study of these 
accounts will serve, far better than mere estimates, to 
correct the errors involved in the extravagant claims of 
promotion literature. 

ACCOUNTS OF A LEHIGH DISTRICT CEMENT 
COMPANY, 1899-1907 

The accounts summarized below are those of the American 
Cement Company, one of the largest of the Lehigh district com- 
panies : 

The American Cement Company is the only large cement 
corporation whose stock is listed on one of the larger exchanges, 
and which publishes audited annual reports. Its policy of full 

87 



THE PORTLAND CEMENT INDUSTRY 

publicity deserves the more credit in that it considerably ante- 
dates the much advertised adoption of the same policy by the 
United States Steel Corporation. 

Financially, the American Cement Company of New Jersey 
is a holding company, with a capital stock of $2,000,000, and 
an original bond issue of $1,000,000, now considerably reduced 
through sinking fund operations. At various dates smaller 
bond and stock issues have been made for the account of sub- 
sidiary companies, but the bulk of these issues of the subsidiaries 
have been absorbed through the operations of sinking funds and 
by direct appropriation from surplus. 

Industrially, the subsidiaries of the American operate a 
group of plants in the Lehigh district of Pennsylvania, with a 
rated or nominal capacity of 2,400,000 barrels annually, and 
an actual output quite closely approximating to that amount, 
as shown by the annual reports. A relatively small portion of 
this output is natural cement, but by far the bulk of the pro- 
duction is Portland Cement. One of the subsidiaries is the sel- 
ling agency for the product of the others. 

A summary of the results of the company's operations for 
the years 1900 to 1907, inclusive, follows: 





1900 


1901 


1902 


1903 


1904 


1905 


1906 


1907 


Net earnings of 

subsidiaries. 

Fixed charges. 


371,523 
102,688 


246,334 
77,812 


296,480 
80,537 


492,145 
97,769 


216,190 
95,625 


208,815 
90,910 


420,183 
117,012 


481,810 
128,358 


Surplus over 
charges . . 

Expenses of 
holding Co. 


268,835 
17,296 


168,522 
15,954 


215,943 
22,467 


394,376 
19,703 


120,565 
11,964 


117,905 
12,630 


303,172 
15,512 


353,451 
22,412 


Balance avail- 
able for div 
Dividends paid 


251,539 
220,000 


152,568 
160,000 


193,475 
160,000 


374,673 
160,000 


108,601 
140,000 


105,275 
120,000 


287,660 
140,000 


331,039 
140,000 



The balance available for dividends, or the net profit of the 
American Cement Company of New Jersey, in each year since 
its organization, is given in the following table. The second 
column of this table contains the actual amount of such annual 



88 



PROFITS AND LOSSES OF CEMENT MANUFACTURE 

profits in dollars; the third column gives the same items ex- 
pressed in percentages of the stock capitalization of the com- 
pany. 



Year. 


Net profits. 


Profits in pei 
of capital, 


1900 


$251,539 


12.57 


1901 


152,568 


7.62 


1902 


193,475 


9-67 


1903 


374,673 


18.73 


1904 


108,601 


5.43 


1905 


105,275 


5.26 


1906 


287,660 


14.38 


1907 


331,039 


16.55 



Average, $225,604 11.28 

When it is borne in mind that the American Cement Com- 
pany is conservatively capitalized, its stock issue being only 
slightly in excess of one dollar for each barrel of actual annual 
output, it will be seen that the cement industry does not yield 
profits at the extravagant rate claimed by promoters. An aver- 
age profit of slightty over 11 per cent, as shown by eight years' 
experience, cannot be considered more than a fair industrial re- 
turn, by no means comparable to the profits obtainable in the 
iron and steel business under favorable conditions. On the other 
hand, while these accounts show no abnormal profits, they also 
show no serious tendencies toward deficits. 

ACCOUNTS OF A MICHIGAN CEMENT COMPANY, 
1906, 1907, 1908 

The Wolverine Portland Cement Company, operating in 
Michigan, has published, at various dates, its annual reports 
for the three years ending on February 28, 1908. These are 
of interest for comparison with those from the Lehigh district 
cited previously. 

As an introduction, it may be said that the Wolverine is 
one of the best of the Michigan companies which use marl and a 
wet process. It operates two plants, in closely adjoining towns, 

89 



THE PORTLAND CEMENT INDUSTRY 

and is credited with a rated or nominal capacity of 800,000 
barrels per year. It may be noted that its actual output is much 
nearer to its rated capacity than in most cement plants. The 
income account for the three years in question follows; rear- 
ranged somewhat from the form in which it has usually been 
published : 

Income account of Wolverine Portland Cement Company. 
For year endmg February 28. 



Gross receipts from operation .... 
Operating costs, repairs and taxes . . 


1906 
$655,981 

514,777 


1907 

$887,014 
555,567 


1908 

$705,292 

496,729 


Net earnings from operation .... 
Rents and other income 


141,204 
11,635 


331,447 
957 


208,563 
1,421 


Total net earnings 

Charged off, depreciation, etc. . . . 


152,839 
52,839 


332,404 
37,404 


209,984 
14,984 


Balance available for dividends . . . 
Dividends paid during year 


100,000 
60,000 


295,000 
260,000 


195,000 
195,000 


Surplus for year 

Previous surplus 


40,000 
125,000 


35,000 
165,000 



200,000 




Surplus at close of year 


$165,000 


$200,000 


$200,000 



A very much condensed general balance sheet for the same 
three years follows : 



BALANCE SHEET OF WOLVERINE PORTLAND CEMENT 



Assets 
Permanent assets 
Current assets 
Cash assets 


COMPANY. 

As of February 28, 

1906. 1907 
$ 987,241 $ 977,919 
152,440 101,097 
38,480 128,025 


1908 
$ 974,711 
102,519 
128,429 


Total assets 

Liabilities. 
Capital stock 
Surplus 
Accounts payable 


$1,178,161 $1,207,042 

$1,000,000 $1,000,000 

165,000 200,000 

13,160 7,042 


$1,205,659 

$1,000,000 

200,000 

5,659 


Total liabilities 


$1,178,161 $1,207,042 
90 


$1,205,659 



PROFITS AND LOSSES OF CEMENT MANUFACTURE 

On inspection of the income accounts above presented, it 
will be seen that the net earnings from operation have, in the 
three years covered by the reports, amounted respectively to 
14. IS per cent, 33.14 per cent and 20.85 per cent on the total 
capitalization of the company. This is at the average rate of 
22.71 per cent per annum. The operating ratio is very low, 
the operating costs for the three years amounting respectively 
to 78.1 per cent, 62.6 per cent, and 70.4 per cent of the gross 
receipts. The amounts carried as "charged off, depreciation, 
etc." appear to have been selected for the simple purpose of 
leaving a surplus which could be stated in conveniently round 
figures. In each year the dividends paid have been at a rate 
which practically used up the balance available for dividends. 

In view of all these facts, a proper interpretation of the re- 
ports would require a knowledge of factors which are not pre- 
sented. If the operating costs quoted contain proper allow- 
ances for depreciation, then the operating ratio is so low as to 
point to unusually low mill costs for a plant of this type. 

DIVIDENDS OF TWO ESTABLISHED COMPANIES 

It is of interest to compare the extravagant dividends 
promised in the average prospectus with the results of actual 
experience in the past. The table below contains data on the 
dividends paid by two large and well-established cement com- 
panies during a long term of years. The two companies have 
been selected as covering a wide range in locality and practise. 
The American Cement Company is one of the largest in the well- 
known Lehigh district of Pennsylvania, which certain natural 
advantages have united to make the principal cement producing 
region of the United States. The Sandusky Portland Cement 
Company, on the other hand, is the largest and probably the 
best equipped of the group of plants in the Middle West which 
use marl as a raw material. The two companies, therefore, dif- 
fer widely as to location, markets and technical factors, but 
agree in being long and favorably known as large cement pro- 
ducers. In spite of this last fact, it will be seen from the fol- 

91 



THE PORTLAND CEMENT INDUSTRY 

lowing table that neither of them has been able to show the 
twenty per cent to thirty per cent annual dividends that are so 
freely promised by promoters at the present day: 



Dividends paid by established companies 


, 1898-1908. 




American Cement Co. 


Sandusky Portland Cement Co.* 


Year 


Rate 


Preferred Stock 


Common Stock 




Rate 


Rate 


1898 




6 per cent. 


2 per cent. 


1899 




6 


4 " 


1900 


8 per cent. 


6 


6 " 


1901 


8 


6 


4 


1902 


8 


6 


6 


1903 


8 


6 


6 


1904 


7 


6 


3 


1905 


6 


6 


6 


1906 


6 


7 


7 


1907 


8 


4^ " 


3 


1908 


6 






Average 


7.22 per cent. 


5.41 per cent. 


4.27 per cent. 



* In justice to the cement industry it is necessary to point out that, in 
addition to the dividends above noted, stockholders of the Sandusky Cement 
Co. have at various dates received 
of determination. 



'' rights" whose exact value is difficult 



THE CHANCE OF SUCCESS AND FAILURE 

A favorite claim of the cement promoter is that the cement 
industry has been free from failures. This claim, ridiculous 
enough on its face, is by no means difficult to disprove. Ever 
since its commencement in the United States, the Portland Ce- 
ment industry has had its full share of disappointment, liti- 
gation and failure. 

In the early stages of the industry here, a large number of 
plants failed, not primarily because of financial troubles, but 
because of technical difficulties. Of the plants built at different 
points between 1875 and 1895, it would probably be a fair 
estimate to say that not over half have been able to survive these 
early difficulties and get on a sufficiently sound footing to be in 
existence at the present day. From 1895 to 1905, the percent- 



92 



PROFITS AND LOSSES OF CEMENT MANUFACTURE 

age of mortality among cement plants was less, because, while 
the technical side of the matter had come to be well understood 
the companies formed were still conservatively financed and 
managed. During the past few years, however, the percentage 
of litigation and failure has again increased, for the business 
world and the courts now have to deal with a large number of 
badly handled companies, promoted more for the sake of stock 
selling than for cement manufacturing. Recent troubles have, 
therefore, been chiefly due to fraudulent promotion or to fool- 
ish investment. 

On going over a long series of records concerning cement 
companies which have been organized during the past five years, 
certain ratios of success seem to be fairly well established. These 
may be summarized as follows: 

1. Of one hundred cement companies taking out charters, over 
half will fail to sell sufficient stock to even commence actual con- 
struction. In these cases the stock purchaser may receive back 
some of his money. 

2. Of the plants which begin construction, about half are unable 
to complete it without reorganization and new security issues. 

3. About 25 per cent, of the plants which actually get to the 
operating stage default on their bond issues at some time during the 
first five years of their history, or are prevented from such default 
only by the issue of secured notes or other securities paid for by 
the stockholders. 

4. Of each hundred companies organized, not over five will ever 
pay dividends to the original stockholders sufficient to make a fair 
interest return on the investment. 

These conditions are not due to any radical unsoundness in 
the cement industry itself, as compared to any other important 
line of industrial activity, but to the unsound manner in which 
too many of the recent cement projects have been financed and 
handled. Given an originally sound proposition, with conser- 
vative financing and good management, and a cement company 
has as much chance of ultimate success as a new iron or steel 
company. The margin of profit in the industry is, however, 
now too low to permit overissue of securities, technical unsound- 
ness, or careless control. 

93 



FEB 24 1903 



